Abstract: The present invention provides a method and apparatus for initializing cryptographic terminals in a cryptographic system. The invention provides a base key that is common to all controllers produced by a manufacturer of cryptographic systems. The base key is installed by the manufacturer of cryptographic terminals in each controller prior to shipment of the controllers. The base key is used only for the purposes of initialization of cryptographic terminals, and is not used for normal operations. Each cryptographic terminal that is to be used with any of the controllers containing the common base key is provided with an initial key by the manufacturer of the terminal. Each initial key is derived from the particular terminal's serial number and the common base key. The initial key is used only for initialization purposes and not for system operation. The terminal and controller establish communications in a normal manner using whatever communication protocol is appropriate for them.