Digital holography can be used to capture the whole Fresnel field from a reflective or transmissive object. Applications include imaging and display of three-dimensional (3D) objects, and encryption and pattern recognition\udof two-dimensional (2D) and 3D objects. Often, these optica\udl systems employ discrete spatial light modulators\ud(SLMs) such as liquid-crystal displays. In the 2D case, SLMs\udcan encode the inputs and keys during encryption\udand decryption. For 3D processing, the SLM can be used as part\udof an optical reconstruction technique for 3D\udobjects, and can also represent the key during encryption an\udd decryption. However, discrete SLMs can represent\udonly discrete levels of data necessitating a quantisation o\udf continuous valued analog information. To date, many\udsuch optical systems have been proposed in the literature, y\udet there has been relatively little experimental evaluation of the practical performance of discrete SLMs in these\udsystems. In this paper, we characterise conventional\udphase-modulating liquid-crystal devices and examine thei\udr limitations (in terms of phase quantisation, alignment\udtolerances, and nonlinear response) for the encryption of 2D and 3D data. Finally, we highlight the practical\udimportance of a highly controlled discretisation (optimal\udquantisation) for compression of digital holograms.
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