Ok Ill have to start somewhere but don't expect an answer to all questions in the first post.
Dmcrypt is the crypt system of the Linux kernel version 2.6 and later so it uses the cryptographic routines from the kernel's Crypto API.
This is a cryptographic framework in the kernel.
That kind of makes it a sensible standard. You can do a lot with it but the operations can be pretty complex so I guess that is why you are offered the "click and install" options.
This makes sense because very few would use it if they had to do it all manually.
If you need control and want to know what is done you can use the cryptsetup command.
From the Arch Wiki:
This section covers how to manually utilize dm-crypt to encrypt a system through the cryptsetup command. It covers examples of the Encryption options with dm-crypt, deals with the creation of keyfiles, LUKS specific commands for key management as well as for Backup and restore.
So the cryptsetup command line tool is they key for paranoid control.
Again I cannot say it better than the
Arch Wiki:
Cryptsetup is the command line tool to interface with dm-crypt for creating, accessing and managing encrypted devices. The tool was later expanded to support different encryption types that rely on the Linux kernel device-mapper and the cryptographic modules. The most notable expansion was for the Linux Unified Key Setup (LUKS) extension, which stores all of the needed setup information for dm-crypt on the disk itself and abstracts partition and key management in an attempt to improve ease of use. Devices accessed via the device-mapper are called blockdevices. For further information see Disk encryption#Block device encryption.
I am not saying you should use Arch - but the documentation in the Arch Wiki is the best IMO.
And To answer Your am I paranoid question:
No you are not paranoidThe good news is that the NSA has flagged what they can crack and thereby also what they cannot
They pressured the Tech companies to go for 128 AES keysize. They preferred 128 so naturally that they can crack.
It is not clear if they can crack 256 - but that will be hard.
Since the NSA wrote most of the Hash algorithms there is every reason to be paranoid -
given the recent history and the NSA's ambitions to control the entire electronic world.
On the other hand; they made it for themselves too and they want something secure.
The version SHA3 is not written by NSA and has a different approach than SHA0,1 and 2.
This version seems to be good if you want to keep Big Brother of your back.
SHA1 is considered
adequate as of January 2014 though.
The attack on LUKS are done via the unencrypted boot processes.
The scenario is that some software has to ask for the user passphrase and this software cannot be encrypted because it must run before the encryption is started.
For Linux encrypted with LUKS that is typically the bootloader and the partition /boot
This enables an attack that logs the key and sends it to an attacker or installs a rootkit.
This attack is known as the
evil maid attack and has been demonstrated against Truecrypt.
To avoid this you can boot the system from an USB stick containing the components required to boot the encrypted system on the harddisk.
You can then remove the USB stick (and hide it

) on a running system leaving the attackers with only an encrypted root file system.
If the attacker should gain access they can destroy data then - but not manipulate it.
This leaves the attack via manipulated hardware in the shape of keyloggers and reflashing of BIOS.
Since most of the computers are sold with this type of manipulation (educated speculation based on the NSA actions - and documented cases -so far): the NSA and (at least) all the "Five Eyes" would still have access.
Because they will be able to log the passphrase.
It is hard to say what Intel has been instructed to put in their hardware but it would be utterly naive to think that the NSA has never contacted Intel.
The question is only if it is targeted or if every computer is manipulated.
So the absolute safe computer (If there is such a thing these days) would be an older computer ("pre NSA manipulation age") with full dm-crypt encryption and "floppydisk" or USB boot.