Abstract: This work proposes the novel scheme for two- factor authentication of confidential images using virtual watermarking technique. Here the content owner uses two images that is master image and sub image which are related to each other. In the first phase virtual watermarking is applied on both images and then the master image is encrypted using an encryption key. In the process of virtual watermarking we obtain a index array to which we will append encryption key used for the image encryption. In the next step index array will be compressed and encrypted using another encryption key. In the end encrypted image, encrypted array and encryption key used for the array encryption is transmitted to the receiver. In the receiver side the reverse process takes place and finally obtains the master image and the sub image back. Here the main focus is on lossless compression of the images, both the images are sent to the receiver without any distortion to the image and also receiver will receive the image without any data loss. This project is highly robust against any attacks due to virtual watermarking process because of which the attacker cannot retrieve the image easily.

Keywords: Virtual Watermarking, lossless compression.