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The way it works is fairly easy to implement: when an Encrypted String data field is used in a LightSwitch window, it's decrypted automatically as the cursor is placed into the field. When the cursor leaves the field, it is automatically encrypted. By using the encrypted string data type, sensitive data can be easily encrypted within a database.
LightSwitch extension points can be very useful for Visual Studio developers. One developer recently showed how you can use the "Encrypted String" field data type in any table in a LightSwitch project as long as the extension is enabled.