We present a new optical scheme for BB84 protocol quantum key distribution(QKD). The proposed setup consists of a compact all-fiber polarization encodingoptical scheme based on LiNbO3 phase modulators, single laser source and twosingle-photon detectors. Optical scheme consists of standard telecommunicationcomponents and is suitable for both fiber and free-space quantum communicationchannels. Low losses (~2dB) in Bob's device increase both the key generationrate and distance limit. A new technique for solving polarization modedispersion (PMD) issue in LiNbO3 is implemented, allowing two crystals toneutralize the effect of each other. Several proof-of-concept experiments havebeen conducted at 10 MHz repetition frequency over 50 km of standard opticalfiber under laboratory conditions and over 30 km of urban fiber with highlosses (13dB), which is a link within a QKD network. To achieve this,calibration algorithms have been developed, allowing the system to workautonomously and making it promising for practical applications.
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