Encryption is done via the
Hashing runs via the method
hash which uses MD5. Not sure why did didn't go with SHA but it should be sufficient.
Encrypting data for later use is done using the
encrypt method that use the
Varien_Crypt class that by default relies on Mcrypt to do it's job.
Since it uses a
factory pattern you can easily use other encryption methods as well in theory by adding a class file in the
Varien_Crypt_Mcrypt class is a wrapper for PHP Mcrypt used to encrypt data with the key given in the
local.xml file under node path
global/crypt/key. If you want to add your own encryption class you can probably use that class best as an example