diff --git a/chanbackup/backupfile_test.go b/chanbackup/backupfile_test.go
index 14747f47b..db379b6f2 100644
--- a/chanbackup/backupfile_test.go
+++ b/chanbackup/backupfile_test.go
@@ -9,6 +9,7 @@ import (
 	"path/filepath"
 	"testing"
 
+	"github.com/lightningnetwork/lnd/lnencrypt"
 	"github.com/stretchr/testify/require"
 )
 
@@ -184,7 +185,7 @@ func assertMultiEqual(t *testing.T, a, b *Multi) {
 func TestExtractMulti(t *testing.T) {
 	t.Parallel()
 
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 
 	// First, as prep, we'll create a single chan backup, then pack that
 	// fully into a multi backup.
diff --git a/chanbackup/crypto.go b/chanbackup/crypto.go
deleted file mode 100644
index 8fdb46f68..000000000
--- a/chanbackup/crypto.go
+++ /dev/null
@@ -1,140 +0,0 @@
-package chanbackup
-
-import (
-	"bytes"
-	"crypto/rand"
-	"crypto/sha256"
-	"fmt"
-	"io"
-	"io/ioutil"
-
-	"github.com/lightningnetwork/lnd/keychain"
-	"golang.org/x/crypto/chacha20poly1305"
-)
-
-// TODO(roasbeef): interface in front of?
-
-// baseEncryptionKeyLoc is the KeyLocator that we'll use to derive the base
-// encryption key used for encrypting all static channel backups. We use this
-// to then derive the actual key that we'll use for encryption. We do this
-// rather than using the raw key, as we assume that we can't obtain the raw
-// keys, and we don't want to require that the HSM know our target cipher for
-// encryption.
-//
-// TODO(roasbeef): possibly unique encrypt?
-var baseEncryptionKeyLoc = keychain.KeyLocator{
-	Family: keychain.KeyFamilyStaticBackup,
-	Index:  0,
-}
-
-// genEncryptionKey derives the key that we'll use to encrypt all of our static
-// channel backups. The key itself, is the sha2 of a base key that we get from
-// the keyring. We derive the key this way as we don't force the HSM (or any
-// future abstractions) to be able to derive and know of the cipher that we'll
-// use within our protocol.
-func genEncryptionKey(keyRing keychain.KeyRing) ([]byte, error) {
-	//  key = SHA256(baseKey)
-	baseKey, err := keyRing.DeriveKey(
-		baseEncryptionKeyLoc,
-	)
-	if err != nil {
-		return nil, err
-	}
-
-	encryptionKey := sha256.Sum256(
-		baseKey.PubKey.SerializeCompressed(),
-	)
-
-	// TODO(roasbeef): throw back in ECDH?
-
-	return encryptionKey[:], nil
-}
-
-// encryptPayloadToWriter attempts to write the set of bytes contained within
-// the passed byes.Buffer into the passed io.Writer in an encrypted form. We
-// use a 24-byte chachapoly AEAD instance with a randomized nonce that's
-// pre-pended to the final payload and used as associated data in the AEAD. We
-// use the passed keyRing to generate the encryption key, see genEncryptionKey
-// for further details.
-func encryptPayloadToWriter(payload bytes.Buffer, w io.Writer,
-	keyRing keychain.KeyRing) error {
-
-	// First, we'll derive the key that we'll use to encrypt the payload
-	// for safe storage without giving away the details of any of our
-	// channels.  The final operation is:
-	//
-	//  key = SHA256(baseKey)
-	encryptionKey, err := genEncryptionKey(keyRing)
-	if err != nil {
-		return err
-	}
-
-	// Before encryption, we'll initialize our cipher with the target
-	// encryption key, and also read out our random 24-byte nonce we use
-	// for encryption. Note that we use NewX, not New, as the latter
-	// version requires a 12-byte nonce, not a 24-byte nonce.
-	cipher, err := chacha20poly1305.NewX(encryptionKey)
-	if err != nil {
-		return err
-	}
-	var nonce [chacha20poly1305.NonceSizeX]byte
-	if _, err := rand.Read(nonce[:]); err != nil {
-		return err
-	}
-
-	// Finally, we encrypted the final payload, and write out our
-	// ciphertext with nonce pre-pended.
-	ciphertext := cipher.Seal(nil, nonce[:], payload.Bytes(), nonce[:])
-
-	if _, err := w.Write(nonce[:]); err != nil {
-		return err
-	}
-	if _, err := w.Write(ciphertext); err != nil {
-		return err
-	}
-
-	return nil
-}
-
-// decryptPayloadFromReader attempts to decrypt the encrypted bytes within the
-// passed io.Reader instance using the key derived from the passed keyRing. For
-// further details regarding the key derivation protocol, see the
-// genEncryptionKey method.
-func decryptPayloadFromReader(payload io.Reader,
-	keyRing keychain.KeyRing) ([]byte, error) {
-
-	// First, we'll re-generate the encryption key that we use for all the
-	// SCBs.
-	encryptionKey, err := genEncryptionKey(keyRing)
-	if err != nil {
-		return nil, err
-	}
-
-	// Next, we'll read out the entire blob as we need to isolate the nonce
-	// from the rest of the ciphertext.
-	packedBackup, err := ioutil.ReadAll(payload)
-	if err != nil {
-		return nil, err
-	}
-	if len(packedBackup) < chacha20poly1305.NonceSizeX {
-		return nil, fmt.Errorf("payload size too small, must be at "+
-			"least %v bytes", chacha20poly1305.NonceSizeX)
-	}
-
-	nonce := packedBackup[:chacha20poly1305.NonceSizeX]
-	ciphertext := packedBackup[chacha20poly1305.NonceSizeX:]
-
-	// Now that we have the cipher text and the nonce separated, we can go
-	// ahead and decrypt the final blob so we can properly serialized the
-	// SCB.
-	cipher, err := chacha20poly1305.NewX(encryptionKey)
-	if err != nil {
-		return nil, err
-	}
-	plaintext, err := cipher.Open(nil, nonce, ciphertext, nonce)
-	if err != nil {
-		return nil, err
-	}
-
-	return plaintext, nil
-}
diff --git a/chanbackup/multi.go b/chanbackup/multi.go
index e90bd613e..40e09f451 100644
--- a/chanbackup/multi.go
+++ b/chanbackup/multi.go
@@ -6,6 +6,7 @@ import (
 	"io"
 
 	"github.com/lightningnetwork/lnd/keychain"
+	"github.com/lightningnetwork/lnd/lnencrypt"
 	"github.com/lightningnetwork/lnd/lnwire"
 )
 
@@ -89,7 +90,12 @@ func (m Multi) PackToWriter(w io.Writer, keyRing keychain.KeyRing) error {
 
 	// With the plaintext multi backup assembled, we'll now encrypt it
 	// directly to the passed writer.
-	return encryptPayloadToWriter(multiBackupBuffer, w, keyRing)
+	e, err := lnencrypt.KeyRingEncrypter(keyRing)
+	if err != nil {
+		return fmt.Errorf("unable to generate encrypt key %v", err)
+	}
+
+	return e.EncryptPayloadToWriter(multiBackupBuffer.Bytes(), w)
 }
 
 // UnpackFromReader attempts to unpack (decrypt+deserialize) a packed
@@ -99,7 +105,11 @@ func (m *Multi) UnpackFromReader(r io.Reader, keyRing keychain.KeyRing) error {
 	// We'll attempt to read the entire packed backup, and also decrypt it
 	// using the passed key ring which is expected to be able to derive the
 	// encryption keys.
-	plaintextBackup, err := decryptPayloadFromReader(r, keyRing)
+	e, err := lnencrypt.KeyRingEncrypter(keyRing)
+	if err != nil {
+		return fmt.Errorf("unable to generate encrypt key %v", err)
+	}
+	plaintextBackup, err := e.DecryptPayloadFromReader(r)
 	if err != nil {
 		return err
 	}
diff --git a/chanbackup/multi_test.go b/chanbackup/multi_test.go
index 0881be60a..a296f914e 100644
--- a/chanbackup/multi_test.go
+++ b/chanbackup/multi_test.go
@@ -5,6 +5,7 @@ import (
 	"net"
 	"testing"
 
+	"github.com/lightningnetwork/lnd/lnencrypt"
 	"github.com/stretchr/testify/require"
 )
 
@@ -27,7 +28,7 @@ func TestMultiPackUnpack(t *testing.T) {
 		multi.StaticBackups = append(multi.StaticBackups, single)
 	}
 
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 
 	versionTestCases := []struct {
 		// version is the pack/unpack version that we should use to
@@ -93,14 +94,17 @@ func TestMultiPackUnpack(t *testing.T) {
 				)
 			}
 
+			encrypter, err := lnencrypt.KeyRingEncrypter(keyRing)
+			require.NoError(t, err)
+
 			// Next, we'll make a fake packed multi, it'll have an
 			// unknown version relative to what's implemented atm.
 			var fakePackedMulti bytes.Buffer
 			fakeRawMulti := bytes.NewBuffer(
 				bytes.Repeat([]byte{99}, 20),
 			)
-			err := encryptPayloadToWriter(
-				*fakeRawMulti, &fakePackedMulti, keyRing,
+			err = encrypter.EncryptPayloadToWriter(
+				fakeRawMulti.Bytes(), &fakePackedMulti,
 			)
 			if err != nil {
 				t.Fatalf("unable to pack fake multi; %v", err)
@@ -124,7 +128,7 @@ func TestMultiPackUnpack(t *testing.T) {
 func TestPackedMultiUnpack(t *testing.T) {
 	t.Parallel()
 
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 
 	// First, we'll make a new unpacked multi with a random channel.
 	testChannel, err := genRandomOpenChannelShell()
diff --git a/chanbackup/pubsub_test.go b/chanbackup/pubsub_test.go
index 0f7207e6c..9586605ca 100644
--- a/chanbackup/pubsub_test.go
+++ b/chanbackup/pubsub_test.go
@@ -7,6 +7,7 @@ import (
 
 	"github.com/btcsuite/btcd/wire"
 	"github.com/lightningnetwork/lnd/keychain"
+	"github.com/lightningnetwork/lnd/lnencrypt"
 	"github.com/stretchr/testify/require"
 )
 
@@ -80,7 +81,7 @@ func (m *mockChannelNotifier) SubscribeChans(chans map[wire.OutPoint]struct{}) (
 func TestNewSubSwapperSubscribeFail(t *testing.T) {
 	t.Parallel()
 
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 
 	var swapper mockSwapper
 	chanNotifier := mockChannelNotifier{
@@ -152,7 +153,7 @@ func assertExpectedBackupSwap(t *testing.T, swapper *mockSwapper,
 func TestSubSwapperIdempotentStartStop(t *testing.T) {
 	t.Parallel()
 
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 
 	var chanNotifier mockChannelNotifier
 
@@ -181,7 +182,7 @@ func TestSubSwapperIdempotentStartStop(t *testing.T) {
 func TestSubSwapperUpdater(t *testing.T) {
 	t.Parallel()
 
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 	chanNotifier := newMockChannelNotifier()
 	swapper := newMockSwapper(keyRing)
 
diff --git a/chanbackup/recover_test.go b/chanbackup/recover_test.go
index 12a94a773..e3e607737 100644
--- a/chanbackup/recover_test.go
+++ b/chanbackup/recover_test.go
@@ -7,6 +7,7 @@ import (
 	"testing"
 
 	"github.com/btcsuite/btcd/btcec/v2"
+	"github.com/lightningnetwork/lnd/lnencrypt"
 	"github.com/stretchr/testify/require"
 )
 
@@ -49,7 +50,7 @@ func (m *mockPeerConnector) ConnectPeer(node *btcec.PublicKey,
 func TestUnpackAndRecoverSingles(t *testing.T) {
 	t.Parallel()
 
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 
 	// First, we'll create a number of single chan backups that we'll
 	// shortly back to so we can begin our recovery attempt.
@@ -123,7 +124,7 @@ func TestUnpackAndRecoverSingles(t *testing.T) {
 	}
 
 	// If we modify the keyRing, then unpacking should fail.
-	keyRing.fail = true
+	keyRing.Fail = true
 	err = UnpackAndRecoverSingles(
 		packedBackups, keyRing, &chanRestorer, &peerConnector,
 	)
@@ -139,7 +140,7 @@ func TestUnpackAndRecoverSingles(t *testing.T) {
 func TestUnpackAndRecoverMulti(t *testing.T) {
 	t.Parallel()
 
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 
 	// First, we'll create a number of single chan backups that we'll
 	// shortly back to so we can begin our recovery attempt.
@@ -217,7 +218,7 @@ func TestUnpackAndRecoverMulti(t *testing.T) {
 	}
 
 	// If we modify the keyRing, then unpacking should fail.
-	keyRing.fail = true
+	keyRing.Fail = true
 	err = UnpackAndRecoverMulti(
 		packedMulti, keyRing, &chanRestorer, &peerConnector,
 	)
diff --git a/chanbackup/single.go b/chanbackup/single.go
index 6aee903b7..a9f0bea1f 100644
--- a/chanbackup/single.go
+++ b/chanbackup/single.go
@@ -12,6 +12,7 @@ import (
 	"github.com/btcsuite/btcd/wire"
 	"github.com/lightningnetwork/lnd/channeldb"
 	"github.com/lightningnetwork/lnd/keychain"
+	"github.com/lightningnetwork/lnd/lnencrypt"
 	"github.com/lightningnetwork/lnd/lnwire"
 )
 
@@ -333,10 +334,10 @@ func (s *Single) Serialize(w io.Writer) error {
 // global counter to use as a sequence number for nonces, and want to ensure
 // that we're able to decrypt these blobs without any additional context. We
 // derive the key that we use for encryption via a SHA2 operation of the with
-// the golden keychain.KeyFamilyStaticBackup base encryption key.  We then take
-// the serialized resulting shared secret point, and hash it using sha256 to
-// obtain the key that we'll use for encryption. When using the AEAD, we pass
-// the nonce as associated data such that we'll be able to package the two
+// the golden keychain.KeyFamilyBaseEncryption base encryption key.  We then
+// take the serialized resulting shared secret point, and hash it using sha256
+// to obtain the key that we'll use for encryption. When using the AEAD, we
+// pass the nonce as associated data such that we'll be able to package the two
 // together for storage. Before writing out the encrypted payload, we prepend
 // the nonce to the final blob.
 func (s *Single) PackToWriter(w io.Writer, keyRing keychain.KeyRing) error {
@@ -351,7 +352,11 @@ func (s *Single) PackToWriter(w io.Writer, keyRing keychain.KeyRing) error {
 	// Finally, we'll encrypt the raw serialized SCB (using the nonce as
 	// associated data), and write out the ciphertext prepend with the
 	// nonce that we used to the passed io.Reader.
-	return encryptPayloadToWriter(rawBytes, w, keyRing)
+	e, err := lnencrypt.KeyRingEncrypter(keyRing)
+	if err != nil {
+		return fmt.Errorf("unable to generate encrypt key %v", err)
+	}
+	return e.EncryptPayloadToWriter(rawBytes.Bytes(), w)
 }
 
 // readLocalKeyDesc reads a KeyDescriptor encoded within an unpacked Single.
@@ -528,7 +533,11 @@ func (s *Single) Deserialize(r io.Reader) error {
 // payload for whatever reason (wrong key, wrong nonce, etc), then this method
 // will return an error.
 func (s *Single) UnpackFromReader(r io.Reader, keyRing keychain.KeyRing) error {
-	plaintext, err := decryptPayloadFromReader(r, keyRing)
+	e, err := lnencrypt.KeyRingEncrypter(keyRing)
+	if err != nil {
+		return fmt.Errorf("unable to generate key decrypter %v", err)
+	}
+	plaintext, err := e.DecryptPayloadFromReader(r)
 	if err != nil {
 		return err
 	}
diff --git a/chanbackup/single_test.go b/chanbackup/single_test.go
index 2f0818096..ab418e190 100644
--- a/chanbackup/single_test.go
+++ b/chanbackup/single_test.go
@@ -14,6 +14,7 @@ import (
 	"github.com/davecgh/go-spew/spew"
 	"github.com/lightningnetwork/lnd/channeldb"
 	"github.com/lightningnetwork/lnd/keychain"
+	"github.com/lightningnetwork/lnd/lnencrypt"
 	"github.com/lightningnetwork/lnd/lnwire"
 	"github.com/lightningnetwork/lnd/shachain"
 	"github.com/stretchr/testify/require"
@@ -207,7 +208,7 @@ func TestSinglePackUnpack(t *testing.T) {
 
 	singleChanBackup := NewSingle(channel, []net.Addr{addr1, addr2})
 
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 
 	versionTestCases := []struct {
 		// version is the pack/unpack version that we should use to
@@ -312,7 +313,7 @@ func TestSinglePackUnpack(t *testing.T) {
 func TestPackedSinglesUnpack(t *testing.T) {
 	t.Parallel()
 
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 
 	// To start, we'll create 10 new singles, and them assemble their
 	// packed forms into a slice.
@@ -361,7 +362,7 @@ func TestPackedSinglesUnpack(t *testing.T) {
 func TestSinglePackStaticChanBackups(t *testing.T) {
 	t.Parallel()
 
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 
 	// First, we'll create a set of random single, and along the way,
 	// create a map that will let us look up each single by its chan point.
@@ -407,8 +408,9 @@ func TestSinglePackStaticChanBackups(t *testing.T) {
 
 	// If we attempt to pack again, but force the key ring to fail, then
 	// the entire method should fail.
+	keyRing.Fail = true
 	_, err = PackStaticChanBackups(
-		unpackedSingles, &mockKeyRing{true},
+		unpackedSingles, &lnencrypt.MockKeyRing{Fail: true},
 	)
 	if err == nil {
 		t.Fatalf("pack attempt should fail")
@@ -432,7 +434,7 @@ func TestSingleUnconfirmedChannel(t *testing.T) {
 	channel.FundingBroadcastHeight = fundingBroadcastHeight
 
 	singleChanBackup := NewSingle(channel, []net.Addr{addr1, addr2})
-	keyRing := &mockKeyRing{}
+	keyRing := &lnencrypt.MockKeyRing{}
 
 	// Pack it and then unpack it again to make sure everything is written
 	// correctly, then check that the block height of the unpacked
diff --git a/docs/configuring_tor.md b/docs/configuring_tor.md
index 1c3c03fe0..a21099c98 100644
--- a/docs/configuring_tor.md
+++ b/docs/configuring_tor.md
@@ -182,3 +182,8 @@ base directory. This will allow `lnd` to recreate the same hidden service upon
 restart. If you wish to generate a new onion service, you can simply delete this
 file. The path to this private key file can also be modified with the
 `--tor.privatekeypath` argument.
+
+You can optionally encrypt the Tor private key by using the `--tor.encryptkey` 
+flag. This will still write to the same private key files. However instead of 
+writing the plaintext private key, `lnd` encrypts the private key using the 
+wallet's seed and writes the encrypted blob to the file.
\ No newline at end of file
diff --git a/docs/release-notes/release-notes-0.16.0.md b/docs/release-notes/release-notes-0.16.0.md
index 5fda3d4bd..59869af69 100644
--- a/docs/release-notes/release-notes-0.16.0.md
+++ b/docs/release-notes/release-notes-0.16.0.md
@@ -58,8 +58,10 @@ minimum version needed to build the project.
   [With the module updated](https://github.com/lightningnetwork/lnd/pull/6836),
   `lnd` now parses Tor control port messages correctly.
 
-* [Update Tor module](https://github.com/lightningnetwork/lnd/pull/6526) to 
-  allow the option to encrypt the private key on disk.
+* [Add option to encrypt Tor private 
+  key](https://github.com/lightningnetwork/lnd/pull/6500), and [update the Tor
+  module](https://github.com/lightningnetwork/lnd/pull/6526) to pave the way for
+  this functionality.
 
 * [Fixed potential data race on funding manager
   restart](https://github.com/lightningnetwork/lnd/pull/6929).
@@ -110,6 +112,7 @@ minimum version needed to build the project.
 * Elle Mouton
 * ErikEk
 * Eugene Siegel
+* Graham Krizek
 * hieblmi
 * Jesse de Wit
 * Matt Morehouse
diff --git a/go.mod b/go.mod
index 0821fad2e..21973764d 100644
--- a/go.mod
+++ b/go.mod
@@ -40,7 +40,7 @@ require (
 	github.com/lightningnetwork/lnd/queue v1.1.0
 	github.com/lightningnetwork/lnd/ticker v1.1.0
 	github.com/lightningnetwork/lnd/tlv v1.0.3
-	github.com/lightningnetwork/lnd/tor v1.0.2
+	github.com/lightningnetwork/lnd/tor v1.1.0
 	github.com/ltcsuite/ltcd v0.0.0-20190101042124-f37f8bf35796
 	github.com/miekg/dns v1.1.43
 	github.com/prometheus/client_golang v1.11.0
diff --git a/go.sum b/go.sum
index 343dc5639..880aaf938 100644
--- a/go.sum
+++ b/go.sum
@@ -465,6 +465,8 @@ github.com/lightningnetwork/lnd/tlv v1.0.3/go.mod h1:dzR/aZetBri+ZY/fHbwV06fNn/3
 github.com/lightningnetwork/lnd/tor v1.0.0/go.mod h1:RDtaAdwfAm+ONuPYwUhNIH1RAvKPv+75lHPOegUcz64=
 github.com/lightningnetwork/lnd/tor v1.0.2 h1:GlumRkKdzXCX0AIvIi2UXKpeY1Q4RT7Lz/CfGpKSLrU=
 github.com/lightningnetwork/lnd/tor v1.0.2/go.mod h1:RDtaAdwfAm+ONuPYwUhNIH1RAvKPv+75lHPOegUcz64=
+github.com/lightningnetwork/lnd/tor v1.1.0 h1:iXO7fSzjxTI+p88KmtpbuyuRJeNfgtpl9QeaAliILXE=
+github.com/lightningnetwork/lnd/tor v1.1.0/go.mod h1:RDtaAdwfAm+ONuPYwUhNIH1RAvKPv+75lHPOegUcz64=
 github.com/ltcsuite/ltcd v0.0.0-20190101042124-f37f8bf35796 h1:sjOGyegMIhvgfq5oaue6Td+hxZuf3tDC8lAPrFldqFw=
 github.com/ltcsuite/ltcd v0.0.0-20190101042124-f37f8bf35796/go.mod h1:3p7ZTf9V1sNPI5H8P3NkTFF4LuwMdPl2DodF60qAKqY=
 github.com/ltcsuite/ltcutil v0.0.0-20181217130922-17f3b04680b6/go.mod h1:8Vg/LTOO0KYa/vlHWJ6XZAevPQThGH5sufO0Hrou/lA=
diff --git a/keychain/derivation.go b/keychain/derivation.go
index 2dea6047b..21996c650 100644
--- a/keychain/derivation.go
+++ b/keychain/derivation.go
@@ -102,12 +102,11 @@ const (
 	// p2p level (BOLT-0008).
 	KeyFamilyNodeKey KeyFamily = 6
 
-	// KeyFamilyStaticBackup is the family of keys that will be used to
-	// derive keys that we use to encrypt and decrypt our set of static
-	// backups. These backups may either be stored within watch towers for
-	// a payment, or self stored on disk in a single file containing all
-	// the static channel backups.
-	KeyFamilyStaticBackup KeyFamily = 7
+	// KeyFamilyBaseEncryption is the family of keys that will be used to
+	// derive keys that we use to encrypt and decrypt any general blob data
+	// like static channel backups and the TLS private key. Often used when
+	// encrypting files on disk.
+	KeyFamilyBaseEncryption KeyFamily = 7
 
 	// KeyFamilyTowerSession is the family of keys that will be used to
 	// derive session keys when negotiating sessions with watchtowers. The
@@ -133,7 +132,7 @@ var VersionZeroKeyFamilies = []KeyFamily{
 	KeyFamilyDelayBase,
 	KeyFamilyRevocationRoot,
 	KeyFamilyNodeKey,
-	KeyFamilyStaticBackup,
+	KeyFamilyBaseEncryption,
 	KeyFamilyTowerSession,
 	KeyFamilyTowerID,
 }
diff --git a/lncfg/tor.go b/lncfg/tor.go
index be58e7ea5..2dcd18c93 100644
--- a/lncfg/tor.go
+++ b/lncfg/tor.go
@@ -13,5 +13,6 @@ type Tor struct {
 	V2                          bool   `long:"v2" description:"Automatically set up a v2 onion service to listen for inbound connections"`
 	V3                          bool   `long:"v3" description:"Automatically set up a v3 onion service to listen for inbound connections"`
 	PrivateKeyPath              string `long:"privatekeypath" description:"The path to the private key of the onion service being created"`
+	EncryptKey                  bool   `long:"encryptkey" description:"Encrypts the Tor private key file on disk"`
 	WatchtowerKeyPath           string `long:"watchtowerkeypath" description:"The path to the private key of the watchtower onion service being created"`
 }
diff --git a/lnd.go b/lnd.go
index 05dbb8696..27ff7bb9d 100644
--- a/lnd.go
+++ b/lnd.go
@@ -474,6 +474,8 @@ func Main(cfg *Config, lisCfg ListenerCfg, implCfg *ImplementationCfg,
 		if torController != nil {
 			wtCfg.TorController = torController
 			wtCfg.WatchtowerKeyPath = cfg.Tor.WatchtowerKeyPath
+			wtCfg.EncryptKey = cfg.Tor.EncryptKey
+			wtCfg.KeyRing = activeChainControl.KeyRing
 
 			switch {
 			case cfg.Tor.V2:
diff --git a/lnencrypt/crypto.go b/lnencrypt/crypto.go
new file mode 100644
index 000000000..5035e0c34
--- /dev/null
+++ b/lnencrypt/crypto.go
@@ -0,0 +1,139 @@
+package lnencrypt
+
+import (
+	"crypto/rand"
+	"crypto/sha256"
+	"fmt"
+	"io"
+	"io/ioutil"
+
+	"github.com/lightningnetwork/lnd/keychain"
+	"golang.org/x/crypto/chacha20poly1305"
+)
+
+// baseEncryptionKeyLoc is the KeyLocator that we'll use to derive the base
+// encryption key used for encrypting all payloads. We use this to then
+// derive the actual key that we'll use for encryption. We do this
+// rather than using the raw key, as we assume that we can't obtain the raw
+// keys, and we don't want to require that the HSM know our target cipher for
+// encryption.
+//
+// TODO(roasbeef): possibly unique encrypt?
+var baseEncryptionKeyLoc = keychain.KeyLocator{
+	Family: keychain.KeyFamilyBaseEncryption,
+	Index:  0,
+}
+
+// EncrypterDecrypter is an interface representing an object that encrypts or
+// decrypts data.
+type EncrypterDecrypter interface {
+	// EncryptPayloadToWriter attempts to write the set of provided bytes
+	// into the passed io.Writer in an encrypted form.
+	EncryptPayloadToWriter([]byte, io.Writer) error
+
+	// DecryptPayloadFromReader attempts to decrypt the encrypted bytes
+	// within the passed io.Reader instance using the key derived from
+	// the passed keyRing.
+	DecryptPayloadFromReader(io.Reader) ([]byte, error)
+}
+
+// Encrypter is a struct responsible for encrypting and decrypting data.
+type Encrypter struct {
+	encryptionKey []byte
+}
+
+// KeyRingEncrypter derives an encryption key to encrypt all our files that are
+// written to disk and returns an Encrypter object holding the key.
+//
+// The key itself, is the sha2 of a base key that we get from the keyring. We
+// derive the key this way as we don't force the HSM (or any future
+// abstractions) to be able to derive and know of the cipher that we'll use
+// within our protocol.
+func KeyRingEncrypter(keyRing keychain.KeyRing) (*Encrypter, error) {
+	//  key = SHA256(baseKey)
+	baseKey, err := keyRing.DeriveKey(
+		baseEncryptionKeyLoc,
+	)
+	if err != nil {
+		return nil, err
+	}
+
+	encryptionKey := sha256.Sum256(
+		baseKey.PubKey.SerializeCompressed(),
+	)
+
+	// TODO(roasbeef): throw back in ECDH?
+
+	return &Encrypter{
+		encryptionKey: encryptionKey[:],
+	}, nil
+}
+
+// EncryptPayloadToWriter attempts to write the set of provided bytes into the
+// passed io.Writer in an encrypted form. We use a 24-byte chachapoly AEAD
+// instance with a randomized nonce that's pre-pended to the final payload and
+// used as associated data in the AEAD.
+func (e Encrypter) EncryptPayloadToWriter(payload []byte,
+	w io.Writer) error {
+
+	// Before encryption, we'll initialize our cipher with the target
+	// encryption key, and also read out our random 24-byte nonce we use
+	// for encryption. Note that we use NewX, not New, as the latter
+	// version requires a 12-byte nonce, not a 24-byte nonce.
+	cipher, err := chacha20poly1305.NewX(e.encryptionKey)
+	if err != nil {
+		return err
+	}
+	var nonce [chacha20poly1305.NonceSizeX]byte
+	if _, err := rand.Read(nonce[:]); err != nil {
+		return err
+	}
+
+	// Finally, we encrypted the final payload, and write out our
+	// ciphertext with nonce pre-pended.
+	ciphertext := cipher.Seal(nil, nonce[:], payload, nonce[:])
+
+	if _, err := w.Write(nonce[:]); err != nil {
+		return err
+	}
+	if _, err := w.Write(ciphertext); err != nil {
+		return err
+	}
+
+	return nil
+}
+
+// DecryptPayloadFromReader attempts to decrypt the encrypted bytes within the
+// passed io.Reader instance using the key derived from the passed keyRing. For
+// further details regarding the key derivation protocol, see the
+// KeyRingEncrypter function.
+func (e Encrypter) DecryptPayloadFromReader(payload io.Reader) ([]byte,
+	error) {
+
+	// Next, we'll read out the entire blob as we need to isolate the nonce
+	// from the rest of the ciphertext.
+	packedPayload, err := ioutil.ReadAll(payload)
+	if err != nil {
+		return nil, err
+	}
+	if len(packedPayload) < chacha20poly1305.NonceSizeX {
+		return nil, fmt.Errorf("payload size too small, must be at "+
+			"least %v bytes", chacha20poly1305.NonceSizeX)
+	}
+
+	nonce := packedPayload[:chacha20poly1305.NonceSizeX]
+	ciphertext := packedPayload[chacha20poly1305.NonceSizeX:]
+
+	// Now that we have the cipher text and the nonce separated, we can go
+	// ahead and decrypt the final blob so we can properly serialize.
+	cipher, err := chacha20poly1305.NewX(e.encryptionKey)
+	if err != nil {
+		return nil, err
+	}
+	plaintext, err := cipher.Open(nil, nonce, ciphertext, nonce)
+	if err != nil {
+		return nil, err
+	}
+
+	return plaintext, nil
+}
diff --git a/chanbackup/crypto_test.go b/lnencrypt/crypto_test.go
similarity index 60%
rename from chanbackup/crypto_test.go
rename to lnencrypt/crypto_test.go
index b5678a528..4a41af328 100644
--- a/chanbackup/crypto_test.go
+++ b/lnencrypt/crypto_test.go
@@ -1,41 +1,12 @@
-package chanbackup
+package lnencrypt
 
 import (
 	"bytes"
-	"fmt"
 	"testing"
 
-	"github.com/btcsuite/btcd/btcec/v2"
-	"github.com/lightningnetwork/lnd/keychain"
+	"github.com/stretchr/testify/require"
 )
 
-var (
-	testWalletPrivKey = []byte{
-		0x2b, 0xd8, 0x06, 0xc9, 0x7f, 0x0e, 0x00, 0xaf,
-		0x1a, 0x1f, 0xc3, 0x32, 0x8f, 0xa7, 0x63, 0xa9,
-		0x26, 0x97, 0x23, 0xc8, 0xdb, 0x8f, 0xac, 0x4f,
-		0x93, 0xaf, 0x71, 0xdb, 0x18, 0x6d, 0x6e, 0x90,
-	}
-)
-
-type mockKeyRing struct {
-	fail bool
-}
-
-func (m *mockKeyRing) DeriveNextKey(keyFam keychain.KeyFamily) (keychain.KeyDescriptor, error) {
-	return keychain.KeyDescriptor{}, nil
-}
-func (m *mockKeyRing) DeriveKey(keyLoc keychain.KeyLocator) (keychain.KeyDescriptor, error) {
-	if m.fail {
-		return keychain.KeyDescriptor{}, fmt.Errorf("fail")
-	}
-
-	_, pub := btcec.PrivKeyFromBytes(testWalletPrivKey)
-	return keychain.KeyDescriptor{
-		PubKey: pub,
-	}, nil
-}
-
 // TestEncryptDecryptPayload tests that given a static key, we're able to
 // properly decrypt and encrypted payload. We also test that we'll reject a
 // ciphertext that has been modified.
@@ -81,15 +52,16 @@ func TestEncryptDecryptPayload(t *testing.T) {
 		},
 	}
 
-	keyRing := &mockKeyRing{}
+	keyRing := &MockKeyRing{}
 
 	for i, payloadCase := range payloadCases {
 		var cipherBuffer bytes.Buffer
+		encrypter, err := KeyRingEncrypter(keyRing)
+		require.NoError(t, err)
 
 		// First, we'll encrypt the passed payload with our scheme.
-		payloadReader := bytes.NewBuffer(payloadCase.plaintext)
-		err := encryptPayloadToWriter(
-			*payloadReader, &cipherBuffer, keyRing,
+		err = encrypter.EncryptPayloadToWriter(
+			payloadCase.plaintext, &cipherBuffer,
 		)
 		if err != nil {
 			t.Fatalf("unable encrypt paylaod: %v", err)
@@ -107,7 +79,9 @@ func TestEncryptDecryptPayload(t *testing.T) {
 			cipherBuffer.Write(cipherText)
 		}
 
-		plaintext, err := decryptPayloadFromReader(&cipherBuffer, keyRing)
+		plaintext, err := encrypter.DecryptPayloadFromReader(
+			&cipherBuffer,
+		)
 
 		switch {
 		// If this was meant to be a valid decryption, but we failed,
@@ -131,26 +105,13 @@ func TestEncryptDecryptPayload(t *testing.T) {
 	}
 }
 
-// TestInvalidKeyEncryption tests that encryption fails if we're unable to
-// obtain a valid key.
-func TestInvalidKeyEncryption(t *testing.T) {
+// TestInvalidKeyGeneration tests that key generation fails when deriving the
+// key fails.
+func TestInvalidKeyGeneration(t *testing.T) {
 	t.Parallel()
 
-	var b bytes.Buffer
-	err := encryptPayloadToWriter(b, &b, &mockKeyRing{true})
+	_, err := KeyRingEncrypter(&MockKeyRing{true})
 	if err == nil {
-		t.Fatalf("expected error due to fail key gen")
-	}
-}
-
-// TestInvalidKeyDecrytion tests that decryption fails if we're unable to
-// obtain a valid key.
-func TestInvalidKeyDecrytion(t *testing.T) {
-	t.Parallel()
-
-	var b bytes.Buffer
-	_, err := decryptPayloadFromReader(&b, &mockKeyRing{true})
-	if err == nil {
-		t.Fatalf("expected error due to fail key gen")
+		t.Fatal("expected error due to fail key gen")
 	}
 }
diff --git a/lnencrypt/test_utils.go b/lnencrypt/test_utils.go
new file mode 100644
index 000000000..1dd381eb3
--- /dev/null
+++ b/lnencrypt/test_utils.go
@@ -0,0 +1,40 @@
+package lnencrypt
+
+import (
+	"fmt"
+
+	"github.com/btcsuite/btcd/btcec/v2"
+	"github.com/lightningnetwork/lnd/keychain"
+)
+
+var (
+	testWalletPrivKey = []byte{
+		0x2b, 0xd8, 0x06, 0xc9, 0x7f, 0x0e, 0x00, 0xaf,
+		0x1a, 0x1f, 0xc3, 0x32, 0x8f, 0xa7, 0x63, 0xa9,
+		0x26, 0x97, 0x23, 0xc8, 0xdb, 0x8f, 0xac, 0x4f,
+		0x93, 0xaf, 0x71, 0xdb, 0x18, 0x6d, 0x6e, 0x90,
+	}
+)
+
+type MockKeyRing struct {
+	Fail bool
+}
+
+func (m *MockKeyRing) DeriveNextKey(
+	keyFam keychain.KeyFamily) (keychain.KeyDescriptor, error) {
+
+	return keychain.KeyDescriptor{}, nil
+}
+
+func (m *MockKeyRing) DeriveKey(
+	keyLoc keychain.KeyLocator) (keychain.KeyDescriptor, error) {
+
+	if m.Fail {
+		return keychain.KeyDescriptor{}, fmt.Errorf("fail")
+	}
+
+	_, pub := btcec.PrivKeyFromBytes(testWalletPrivKey)
+	return keychain.KeyDescriptor{
+		PubKey: pub,
+	}, nil
+}
diff --git a/sample-lnd.conf b/sample-lnd.conf
index 0320a76c9..4ba5d3c45 100644
--- a/sample-lnd.conf
+++ b/sample-lnd.conf
@@ -935,6 +935,8 @@ litecoin.node=ltcd
 ;The path to the private key of the watchtower onion service being created
 ; tor.watchtowerkeypath=/other/path/
 
+; Instructs lnd to encrypt the private key using the wallet's seed.
+; tor.encryptkey=true
 
 [watchtower]
 
diff --git a/server.go b/server.go
index 3d4a3d640..62527d478 100644
--- a/server.go
+++ b/server.go
@@ -47,6 +47,7 @@ import (
 	"github.com/lightningnetwork/lnd/keychain"
 	"github.com/lightningnetwork/lnd/kvdb"
 	"github.com/lightningnetwork/lnd/lncfg"
+	"github.com/lightningnetwork/lnd/lnencrypt"
 	"github.com/lightningnetwork/lnd/lnpeer"
 	"github.com/lightningnetwork/lnd/lnrpc"
 	"github.com/lightningnetwork/lnd/lnrpc/routerrpc"
@@ -2766,13 +2767,21 @@ func (s *server) createNewHiddenService() error {
 		listenPorts = append(listenPorts, port)
 	}
 
+	encrypter, err := lnencrypt.KeyRingEncrypter(s.cc.KeyRing)
+	if err != nil {
+		return err
+	}
+
 	// Once the port mapping has been set, we can go ahead and automatically
 	// create our onion service. The service's private key will be saved to
 	// disk in order to regain access to this service when restarting `lnd`.
 	onionCfg := tor.AddOnionConfig{
 		VirtualPort: defaultPeerPort,
 		TargetPorts: listenPorts,
-		Store:       tor.NewOnionFile(s.cfg.Tor.PrivateKeyPath, 0600),
+		Store: tor.NewOnionFile(
+			s.cfg.Tor.PrivateKeyPath, 0600, s.cfg.Tor.EncryptKey,
+			encrypter,
+		),
 	}
 
 	switch {
diff --git a/watchtower/config.go b/watchtower/config.go
index 874d58416..f79de9cac 100644
--- a/watchtower/config.go
+++ b/watchtower/config.go
@@ -98,6 +98,12 @@ type Config struct {
 	// for a watchtower hidden service should be stored.
 	WatchtowerKeyPath string
 
+	// EncryptKey will encrypt the Tor private key on disk.
+	EncryptKey bool
+
+	// KeyRing is the KeyRing to use when encrypting the Tor private key.
+	KeyRing keychain.KeyRing
+
 	// Type specifies the hidden service type (V2 or V3) that the watchtower
 	// will create.
 	Type tor.OnionType
diff --git a/watchtower/standalone.go b/watchtower/standalone.go
index fb1f365be..c652d9c76 100644
--- a/watchtower/standalone.go
+++ b/watchtower/standalone.go
@@ -6,6 +6,7 @@ import (
 
 	"github.com/btcsuite/btcd/btcec/v2"
 	"github.com/lightningnetwork/lnd/brontide"
+	"github.com/lightningnetwork/lnd/lnencrypt"
 	"github.com/lightningnetwork/lnd/tor"
 	"github.com/lightningnetwork/lnd/watchtower/lookout"
 	"github.com/lightningnetwork/lnd/watchtower/wtserver"
@@ -163,14 +164,22 @@ func (w *Standalone) createNewHiddenService() error {
 		listenPorts = append(listenPorts, port)
 	}
 
+	encrypter, err := lnencrypt.KeyRingEncrypter(w.cfg.KeyRing)
+	if err != nil {
+		return err
+	}
+
 	// Once we've created the port mapping, we can automatically create the
 	// hidden service. The service's private key will be saved on disk in order
 	// to persistently have access to this hidden service across restarts.
 	onionCfg := tor.AddOnionConfig{
 		VirtualPort: DefaultPeerPort,
 		TargetPorts: listenPorts,
-		Store:       tor.NewOnionFile(w.cfg.WatchtowerKeyPath, 0600),
-		Type:        w.cfg.Type,
+		Store: tor.NewOnionFile(
+			w.cfg.WatchtowerKeyPath, 0600, w.cfg.EncryptKey,
+			encrypter,
+		),
+		Type: w.cfg.Type,
 	}
 
 	addr, err := w.cfg.TorController.AddOnion(onionCfg)