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The proposed algorithm suggests a lossless data compression with security. Input Bit stream is divided into a group of 8-bits each .Encoder deviate the available Randomly generated key according to input bit stream which results into encrypted data. Encrypted key of 64-bits is treated as unit of 4-bits each. Each 4-bits of Key will be at the Hamming distance is of Two from Deviated key. There will be total Six numbers of 4-bits which are at the Hamming distance of Two from Key. These numbers can be indexed by using 3-bits. The index of Three bits of a number is available on the channel as a compressed bit stream.
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