When you enable encryption, Virtual SAN encrypts everything in the Virtual SAN datastore. All files are encrypted, so all virtual machines and their corresponding data are protected. Only administrators with encryption privileges can perform encryption and decryption tasks.
Virtual SAN uses encryption keys as follows:
vCenter Server requests an AES-256 Key Encryption Key (KEK) from the KMS. vCenter Server stores only the ID of the KEK, but not the key itself.
The ESXi host encrypts disk data using the industry standard AES-256 XTS mode. Each disk has a different randomly generated Data Encryption Key (DEK).
Each ESXi host uses the KEK to encrypt its DEKs, and stores the encrypted DEKs on disk. The host does not store the KEK on disk. If a host reboots, it requests the KEK with the corresponding ID from the KMS. The host can then decrypt its DEKs as needed.
A host key is used to encrypt core dumps, not data. All hosts in the same cluster use the same host key. When collecting support bundles, a random key is generated to re-encrypt the core dumps. Use a password when you encrypt the random key.
When a host reboots, it does not mount its disk groups until it receives the KEK. This process can take several minutes or longer to complete. You can monitor the status of the disk groups in the Virtual SAN health service, under Physical disks > Software state health.