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Formally, a block cipher is a family of permutations, indexed by the key. More specifically, let $P$ be the set of all permutations (shufflings of elements as you put it) on the set of $n$ bit strings, i.e. the Symmetric Group $Sym(\{0,1\}^n)$. The $n$-bit block cipher $B$ is a subset of $P$. The key specifies which element of the subset $B$ is to be used ...


What you described is to use a so-called "stram cipher". Stream ciphers output a random sequence of bytes for the same Key/IV pair. The usual usage of stream ciphers is to XOR the data with the stream to obtain the encrypted data. You may want to follow the same approach by replacing the LSBs by the bits that were output by the encryption procedure (Data ...

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