Virtual Data Rooms (VDRs) have revolutionised the way businesses manage sensitive documents. Whether during mergers and acquisitions, legal proceedings, fundraising, or regulatory audits, VDRs offer a secure digital environment for storing, sharing, and collaborating on confidential data. However, in the race to adopt digital platforms, many companies are entrusting their most critical assets to VDR providers without fully understanding the underlying security protocols—particularly when it comes to encryption.
While most VDR vendors claim to offer “secure” encryption, not all encryption is equal. The term is often used loosely, leaving organisations vulnerable to data leaks and breaches under the illusion of protection. This blog explores the concept of ‘false’ encryption—what it is, why it’s dangerous, and how businesses can ensure they’re not falling into this trap.
What is ‘False’ Encryption?
False encryption refers to encryption that either does not fully protect data as advertised or is implemented in such a way that it becomes ineffective in real-world scenarios. In the context of VDRs, this often manifests in several ways:
- Encryption at rest but not in transit: Some VDRs encrypt data only when it is stored on their servers, not when it is being uploaded, downloaded, or viewed.
- Server-side decryption: If documents are decrypted on the VDR provider’s servers before being sent to users, there’s a window during which the data is exposed.
- Browser-based vulnerabilities: Relying solely on HTTPS does not mean end-to-end encryption is in place, especially if the document viewer is vulnerable to manipulation or lacks granular permissions.
In each of these cases, businesses may believe their documents are secure because they are “encrypted”, when in reality, the protections are superficial or flawed in execution.
Why Superficial Security Claims Are a Problem
In today’s regulatory and reputational environment, a security breach can have devastating consequences. Financial penalties under data protection laws, such as the GDPR, are just the beginning. The loss of stakeholder trust, brand damage, and disruption of strategic transactions can far outweigh the monetary costs.
When companies rely on VDRs for critical processes—like M&As, joint ventures, board meetings, or due diligence—they are placing their crown jewels in someone else’s hands. If that VDR does not implement encryption correctly or transparently, the organisation is essentially handing over sensitive data to an unvetted intermediary.
Common Risks of Poor VDR Encryption:
- Man-in-the-middle attacks during data transmission
- Internal access or compromise within the VDR provider’s team
- Browser-based data theft due to lack of secure viewers
- Data persistence in browser caches or temporary files
- Weak access controls that allow unauthorised downloads or printing
Encryption is only as strong as its implementation. When businesses don’t ask the right questions, they expose themselves to avoidable risk.
The Misconception of “Military-Grade” Security
It’s common to see VDRs touting AES-256 encryption, the so-called “military-grade” standard. While this algorithm is strong, it does not guarantee end-to-end security. What matters is where and how encryption is applied.
For example, if files are encrypted during storage but decrypted on a central server for preview, then re-encrypted before being transmitted to users, there are multiple moments of exposure. Even if AES-256 is used at each stage, the data is not truly protected from internal threats or advanced cyberattacks.
Moreover, if encryption keys are stored alongside the data, or if the VDR provider has full access to those keys, the notion of “zero-knowledge” security is nullified. In such cases, the provider—and potentially a rogue employee or third-party contractor—could access confidential documents.
Red Flags: When to Suspect False Encryption
Organisations evaluating or using a VDR should be aware of certain red flags that indicate weak or misleading encryption practices:
- No mention of end-to-end encryption
If the VDR doesn’t clearly state that encryption is applied from the moment a document is uploaded to the moment it’s viewed—without any server-side decryption—be cautious.
- Lack of secure document viewers
If the platform opens files in standard browser tabs or allows downloads without any form of controlled viewing, it’s a sign that encryption stops at the server.
- Over-reliance on HTTPS
While HTTPS is essential, it does not replace secure rendering and controlled access. True VDRs go beyond HTTPS to ensure secure in-browser document viewing.
- Generic access controls
If all users have the same access permissions or if granular control (e.g., no print, no screenshot, watermarking) is missing, data exposure is just a step away.
- Inadequate audit trails
Without detailed activity logs and real-time tracking, there’s no way to detect or respond to unauthorised access or suspicious behaviour.
What Secure Encryption Should Look Like in a VDR
To avoid falling for false promises, organisations should look for the following encryption and security features in a VDR:
- End-to-End Encryption (E2EE): Data is encrypted on the sender’s device and only decrypted on the recipient’s device. Even the VDR provider cannot access the content.
- Granular User Permissions: Control over who can view, download, print, or share specific files or folders.
- Dynamic Watermarking: Automatic embedding of user-specific watermarks with name, timestamp, IP address, etc., to deter leaks.
- Secure Document Viewer: Prevents right-click, copy-paste, or screen capturing attempts. Includes features like “fence view” that blur content when users navigate away from the active window.
- Customisable Two-Factor Authentication: Protects user accounts with OTP-based access or app-based authentication.
- Comprehensive Audit Trails: Logs every action, from document views to downloads, with timestamp and user identity.
- Data Sovereignty Controls: Ability to host data in specific jurisdictions to meet compliance needs (e.g., GDPR, HIPAA, etc.).
The Business Case for Demanding Real Security
Security in a VDR is not just an IT or compliance concern—it’s a strategic business decision. Poor encryption can derail deals, attract penalties, or even result in legal action. In contrast, robust security builds trust with investors, partners, and regulators.
Every sensitive document that flows through a VDR—from investor pitch decks to financial statements, contracts, IP assets, and legal disclosures—carries significant value. Protecting this information is not optional; it is fundamental to preserving a company’s competitive advantage.
Businesses must therefore move beyond marketing slogans and conduct due diligence on their VDR providers. Ask for third-party audits, request documentation of encryption protocols, and verify what happens to your data at each stage of its journey.
Conclusion
As the digital age accelerates and strategic transactions become more complex and global, the importance of airtight VDR security continues to grow. Relying on misleading claims of encryption or failing to verify actual security practices can lead to dire consequences. Organisations must challenge assumptions, understand the true nature of encryption offered, and ensure that they are using platforms that prioritise data security at every level.
DocullyVDR is designed with precisely this understanding. With over 17 years of experience, it provides a blazing-fast, feature-rich virtual data room platform that not only delivers up to 60% faster uploads and 55% faster deal closures, but also integrates robust document security features. From dynamic watermarking and secure fence view to OTP-based two-factor authentication and over 50 global data centre hosting options, DocullyVDR ensures your data is never compromised—because real encryption shouldn’t just be promised, it should be proven.
