Like many public key cryptosystems, this scheme works in the group where n is a product of two large primes. This scheme is homomorphic and hence malleable.
Read more about this topic: Naccache–Stern Cryptosystem
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... The security of this scheme rests on the Higher residuosity problem, specifically, given z,r and n where the factorization of n is unknown, it is computationally infeasible ...
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