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I want to install Linux on a USB stick (64GB USB 3.0) and set it to use the laptop HDD as encrypted storage. My aim is to thereby secure my laptop, if it's stolen/in the wrong hands, no USB stick no OS, so the laptop will not boot.

Any feedback on how to accomplish this, what type of encryption scheme to use on the HDD, should the USB stick be encrypted, as well as to the validity of this setup as a means to add an additional physical layer of security to my laptop, would be much appreciated. Or am I grossly over complicating things? Would this create a big hit on performance? My laptop is an older Intel CORE i3 2.1Ghz with 4GB ram.

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I believe as long as your installer sees the USB media you want to install to it should work just like an internal HDD. You might want to format it ahead of time and give it a name,to make sure you are installing to the right place. I have heard that USB flash drives are not as robust as actual HDDs, and speed will still be an issue,even with USB 3. Your read/write cycles are also a consideration. Good luck.

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