The selection of local hip-hop star Tiki Taane as lead act also cast doubt on Mr Dotcom's denial the site was "revenge", as some media saw it.
Taane made headlines after singing "F*** The Police" while officers were in a club hosting his performance in 2011.
Mr Dotcom launched the site with a re-creation of the raid that saw him and three colleagues arrested.
A low-flying helicopter marked as an FBI chopper circled the mansion while fake armed police officers abseiled from the roofs and pretended to raid the stage accompanied by fireworks and explosions.
Mr Dotcom told an audience of investors, entrepreneurs, supporters and media that the programming code used for the encryption would be released publicly to be built into other online services
"Ultimately, more and more of the internet will be encrypted because of Mega. By using Mega you can say 'no' to those wanting to know everything about you."
More than 70 officers took part in the operation last year to arrest Mr Dotcom and Finn Batato, Mathias Ortmann and Bram van der Kolk.
The four, who all face extradition to the United States for copyright violation and associated charges, were gathered at the mansion a year ago to celebrate Mr Dotcom's birthday on January 21.
He said the the launch date was chosen "because I want the anniversary to be something positive rather than horrible".
Mr Dotcom said he and his colleagues had become a "ball in a very powerful game", saying they fell victim to President Barack Obama's election-year wooing of Hollywood.
He said in the months before the raid he had been preparing to use technology which would have changed the way movies and music were produced. He revealed Hollywood producer Lawrence Bender was in Auckland visiting in the months leading up to the arrest. Mr Bender is behind hit movies Reservoir Dogs and and Good Will Hunting. "Our meetings were all about how do we get these Hollywood executives to the table to talk to us."
Mr Dotcom laid out plans for free interne, which was hampered by the single internet cable coming into the country.
"It is hindering New Zealand to be any kind of player in the internet game."
New Venture
What is Mega?
It is Kim Dotcom's new website, which owes its existence to a string of investors. The biggest is the company's new chief executive Tony Lentino, a New Zealander who made a fortune with a domain name hosting company in Australia.
What does Mega do?
Simply, it stores data. How it does that is the claimed point of difference. First, its traffic is encrypted so no one can know what is being stored or transferred other than the user and those they share their encryption "keys" with. Secondly, it moves data faster and more ably by making the most of Google Chrome.
What's the big deal with encryption?
Mainly it removes any possibility of the Mega team knowing if copyrighted material is being stored by users. The data content, and responsibility, lies with the user. It also answers a growing online desire for greater personal security of data. The file storage aspect is just the beginning with secure email and user-to-user file transfers.
So could the website be used for internet piracy?
Yes, although Dotcom's US-based lawyer Ira Rothken says many technologies could be used for good or ill. The responsibility is with users.
Is it going to get shut down like Megaupload?Dotcom says no, because every aspect of the site has been studied by lawyers. However, he said the same scrutiny had been applied to Megaupload. Mr Rothken says details of Mega were supplied to US and NZ authorities weeks ago and no issue has been raised.
Why is Kim Dotcom still here?
Aside from being a resident, he has faced delays around his extradition hearing to the United States. He and his three colleagues were initially set for a hearing over a year ago. Errors by NZ government agencies and legal challenges by lawyers have seen the hearing put off until August this year.
Chief executive 'definitely on radar'
Tony Lentino says he likes to fly under the radar.
As the new chief executive of Kim Dotcom's Mega venture, it is likely powerful people in Washington now know his name.
"I'm definitely on the radar now."
With Dirty Dog-style sunnies and a black T-shirt, Hawkes Bay-born Mr Lentino was looking every bit a Kiwi at Mr Dotcom's mansion yesterday as details of the new business were revealed.
Mr Lentino, who is behind the Melbourne-based domain name registry Instra, said he had known Mr Dotcom for about three years and had stepped forward to help after the raid.
"I was disgusted hearing a family being chucked out on to the street," he said. "My wife and I came to their aid and offered assistance." The help included paying $250,000 for three months' rent at the mansion.
Mr Lentino said he was astonished when he heard of the raid and the charges, having done due diligence on Mr Dotcom and his business.
"None of this is about the money. It is all about principles. What happened is wrong. Kim's innocent. It's just not on. I'm all in."
