You can put all your Service files in a Folder & Arrange Forms Authentication for it.
But it might come with demerits when portable devices are going to consume your Service.
Otherwise you can follow the below links for Service contract level Security & Encryption:
WCF Service Method Level Security using Message Contract[
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WCF FAQ: Part 3 – 10 security related FAQ[
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Now what I believe you going to need all this encryption/decryption when you are storing the user Identity in User's Browser. Coz at server level everything is Secure.
So you can follow the below links if you want to implement Encrption:
how to encrypt and decrypt password in asp.net[
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http://forums.asp.net/t/1784129.aspx/1[
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So as per your requirement to store the Identity of User in user's Browser by Encrypting it, you could follow the below mentioned link:
HttpSecureCookie, A Way to Encrypt Cookies with ASP.NET 2.0[
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Still if you want to implement a Secure Identity using Server side storing technique, then I'd suggest you to go for Session variable.
I believe this could help you to some extent.