Encryption is a major field of study within computer science and has been for many years and whatever I say briefly here cannot do justice to the topic.
In a nutshell, encryption is the systematic scrambling of data in order to make it unrecognizable to anyone who does not know how to unscramble it. The technology is quite advanced and there are many different ways of doing it. The best encryption algorithms leave the chances as greater than one in a trillion of finding the key that will allow somebody to unscramble the data.
Where storage networking is concerned, people want to understand how their data will be stored in a way that a hacker couldn't steal it. One of the answers is to use encryption technology. The problem is that even though the technology is quite advanced, it is still relatively slow - compared to the speeds required for many storage I/O processes. There have been attempts to make encryption work in IP networking chips using something called IP-SEC (IP security). It's not clear to me how this technology is being used and how successful it has been or will be.
One thing to watch out for: if you store data in an encrypted fashion and lose the digital encryption key, you probably have no way of ever reading that data again unless somebody else happens to be holding the key for you (key escrow). It is the classic encryption problem, but you seem like you wanted to know.
Encryption probably creates more problems than it solves, but it's necessary in some environments where data security is of the utmost importance.
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This was first published in November 2001