(This is similar to the Vernam cipher except that generated pseudorandom bits, rather than a prepared stream, are used.)

Gilbert Vernam, a telecommunication engineer developed the Vernam cipher in 1917.

It is derived from the Vernam cipher, named after Gilbert Vernam, one of its inventors.

Stream ciphers can be viewed as approximating the action of a proven unbreakable cipher, the one-time pad (OTP), sometimes known as the Vernam cipher.

For example the Vernam cipher enciphers by bit-for-bit combining plaintext with a long key using the "exclusive or" operator, which is also known as "modulo-2 addition" (symbolized by ):

The Vernam cipher achieves this reciprocity, as combining the stream of plaintext characters with the key stream produces the ciphertext, and combining the same key with the ciphertext regenerates the plaintext.

(This is similar to the Vernam cipher except that pseudorandom bits, rather than random bits, are used.) To generate the keystream, the cipher makes use of a secret internal state which consists of two parts:

Systems using relay logic diagrams in other forms include the Vernam cipher machine, the many 20th century telephone exchanges that controlled their crossbar switches by relays, and the designs for the various electro-mechanical computers including the Harvard Mark II.

During the experimental period of Tunny transmissions when the twelve-letter indicator system was in use, John Tiltman, Bletchley Park's veteran and remarkably gifted cryptanalyst, studied the Tunny ciphertexts and identified that they used a Vernam cipher.

This allowed John Tiltman, Bletchley Park's veteran and remarkably gifted cryptanalyst, to deduce that it was a Vernam cipher which uses the Exclusive Or (XOR) function (symbolised by " "), and to extract the two messages and hence obtain the obscuring key.

In modern terminology, a Vernam cipher is a symmetrical stream cipher in which the plaintext is combined with a random or pseudorandom stream of data (the "keystream") of the same length, to generate the ciphertext, using the Boolean "exclusive or" (XOR) function.