A detailed analysis of quantum key distribution employing entangled states is presented. We tested a system based on photon pairs entangled in energy-time optimized for long-distance transmission. It is based on a Franson-type setup for monitoring quantum correlations, and uses a protocol analogous to the Bennett-Brassard 1984 protocol. Passive-state preparation is implemented by polarization multiplexing in the interferometers. We distributed a sifted key of 0.4 Mbit at a raw rate of 134 Hz and with an error rate of 8.6% over a distance of 8.5 km. We thoroughly discuss the noise sources and practical difficulties associated with entangled-state systems. Finally, the level of security offered by this system is assessed and compared with that of faint-laser-pulse systems.
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