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I need to deploy a software installation on Ubuntu VM running on top of ESXi. The ESXi does not support any encryption on the VM level, so this has to be done on the guest OS. I basically want to prevent someone from copying the image and reading the software.

AFAIK there's the option of encryption the Ubuntu partion during installation with the LVM. However this requires a key to be entered on every restart, or storing the key on the unprotected boot partion, both of which are not optimal.

Are there any workarounds for LVM encryption or is there any other tool that can be used in this situation?

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want to prevent someone from copying

You want a filesystem which users and the system admin can't read - but your software can. (If you're not bothered about 'root' accessing the file, then you only need to set the permissions on it).

this requires a key to be entered on every restart, or storing the key on the unprotected boot partion

You want it encrypted but you don't want to use a password to access it.

Is it just me or is this just a little over optimistic?

If the question were a bit more realistic, I'd suggest you have a look at and encrypted FUSE

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