Encryption protects sensitive data by transforming it into an unreadable format using algorithms and keys, ensuring that only authorized parties with the correct decryption key can access the original information. This process secures data in transit and at rest, making it an essential tool for safeguarding personal, financial, and confidential business information from unauthorized access and cyber threats.

When data is encrypted, it becomes ciphertext, which appears as a random sequence of characters. Even if intercepted by malicious actors, this encrypted data is useless without the corresponding decryption key. Encryption can be applied at multiple levels, including file-level, disk-level, and communication channels, providing comprehensive security for sensitive information.

However, encryption has limitations. First, it requires effective key management; if keys are lost or compromised, the encrypted data becomes inaccessible or vulnerable. Second, encryption does not protect against all types of cyber threats. For instance, if an attacker gains access to the system where data is decrypted, they can access the sensitive information. Third, performance overhead can be an issue, as encrypting and decrypting data consume computational resources, potentially slowing down system operations.

In summary, encryption is a powerful tool for protecting sensitive data, but its effectiveness depends on proper implementation, key management, and integration with other security measures.