  Quantum key distribution (QKD) provides a method of ensuring security using
the laws of physics, avoiding the risks inherent in cryptosystems protected by
computational complexity. Here we investigate the feasibility of
satellite-based quantum key exchange using low-cost compact nano-satellites.
This paper demonstrates the first prototype of system level quantum key
distribution aimed at the Cube satellite scenario. It consists of a transmitter
payload, a ground receiver and simulated free space channel to verify the
timing and synchronisation (T&S) scheme designed for QKD and the required high
loss tolerance of both QKD and T&S channels. The transmitter is designed to be
deployed on various up-coming nano-satellite missions in the UK and
internationally. The effects of channel loss, background noise, gate width and
mean photon number on the secure key rate (SKR) and quantum bit error rate
(QBER) are discussed. We also analyse the source of QBER and establish the
relationship between effective signal noise ratio (ESNR) and noise level,
signal strength, gating window and other parameters as a reference for SKR
optimization. The experiment shows that it can tolerate the 40 dB loss expected
in space to ground QKD and with small adjustment decoy states can be achieved.
The discussion offers valuable insight not only for the design and optimization
of miniature low-cost satellite-based QKD systems but also any other short or
long range free space QKD on the ground or in the air.
