diff --git a/block.c b/block.c
index 5f3f780fbe126296745c8f2a15ed8e93f3883b18..78ab2d0462028a82931902f873ba1487be455fa2 100644
--- a/block.c
+++ b/block.c
@@ -336,6 +336,7 @@ int bdrv_open2(BlockDriverState *bs, const char *filename, int flags,
     bs->read_only = 0;
     bs->is_temporary = 0;
     bs->encrypted = 0;
+    bs->valid_key = 0;
 
     if (flags & BDRV_O_SNAPSHOT) {
         BlockDriverState *bs1;
@@ -966,6 +967,15 @@ int bdrv_is_encrypted(BlockDriverState *bs)
     return bs->encrypted;
 }
 
+int bdrv_key_required(BlockDriverState *bs)
+{
+    BlockDriverState *backing_hd = bs->backing_hd;
+
+    if (backing_hd && backing_hd->encrypted && !backing_hd->valid_key)
+        return 1;
+    return (bs->encrypted && !bs->valid_key);
+}
+
 int bdrv_set_key(BlockDriverState *bs, const char *key)
 {
     int ret;
@@ -978,7 +988,9 @@ int bdrv_set_key(BlockDriverState *bs, const char *key)
     }
     if (!bs->encrypted || !bs->drv || !bs->drv->bdrv_set_key)
         return -1;
-    return bs->drv->bdrv_set_key(bs, key);
+    ret = bs->drv->bdrv_set_key(bs, key);
+    bs->valid_key = (ret == 0);
+    return ret;
 }
 
 void bdrv_get_format(BlockDriverState *bs, char *buf, int buf_size)
diff --git a/block.h b/block.h
index a01fa31b0ca8c6c44d26145edbfc0e17f602f266..5c6eaf937c716e9bf4ad671332945f49ba3ced56 100644
--- a/block.h
+++ b/block.h
@@ -103,8 +103,6 @@ BlockDriverAIOCB *bdrv_aio_write(BlockDriverState *bs, int64_t sector_num,
                                  BlockDriverCompletionFunc *cb, void *opaque);
 void bdrv_aio_cancel(BlockDriverAIOCB *acb);
 
-int qemu_key_check(BlockDriverState *bs, const char *name);
-
 /* Ensure contents are flushed to disk.  */
 void bdrv_flush(BlockDriverState *bs);
 void bdrv_flush_all(void);
@@ -144,7 +142,9 @@ BlockDriverState *bdrv_find(const char *name);
 void bdrv_iterate(void (*it)(void *opaque, BlockDriverState *bs),
                   void *opaque);
 int bdrv_is_encrypted(BlockDriverState *bs);
+int bdrv_key_required(BlockDriverState *bs);
 int bdrv_set_key(BlockDriverState *bs, const char *key);
+int bdrv_query_missing_keys(void);
 void bdrv_iterate_format(void (*it)(void *opaque, const char *name),
                          void *opaque);
 const char *bdrv_get_device_name(BlockDriverState *bs);
diff --git a/block_int.h b/block_int.h
index e1943aaa641157d76ff432ebbdb59b633ef55cf4..44eb280684d8474e57df81afbbda2da8d5b88604 100644
--- a/block_int.h
+++ b/block_int.h
@@ -96,6 +96,7 @@ struct BlockDriverState {
     int removable; /* if true, the media can be removed */
     int locked;    /* if true, the media cannot temporarily be ejected */
     int encrypted; /* if true, the media is encrypted */
+    int valid_key; /* if true, a valid encryption key has been set */
     int sg;        /* if true, the device is a /dev/sg* */
     /* event callback when inserting/removing */
     void (*change_cb)(void *opaque);
diff --git a/console.h b/console.h
index 8f438e93f702717e8d6cb93e8f5fd375f145f497..0c86852c4ed39919208cb369d9bfd0220eb8882b 100644
--- a/console.h
+++ b/console.h
@@ -302,10 +302,9 @@ void term_printf(const char *fmt, ...) __attribute__ ((__format__ (__printf__, 1
 void term_print_filename(const char *filename);
 void term_flush(void);
 void term_print_help(void);
-void monitor_readline(const char *prompt, int is_password,
-                      char *buf, int buf_size);
 void monitor_suspend(void);
 void monitor_resume(void);
+int monitor_read_bdrv_key(BlockDriverState *bs);
 
 /* readline.c */
 typedef void ReadLineFunc(void *opaque, const char *str);
diff --git a/hw/usb-msd.c b/hw/usb-msd.c
index 342b0e873acf7aad9a1d70db6c79f4b10540c9c6..0c8d9cca83ef7e55815646dc24d20c516d83f7f2 100644
--- a/hw/usb-msd.c
+++ b/hw/usb-msd.c
@@ -11,6 +11,7 @@
 #include "usb.h"
 #include "block.h"
 #include "scsi-disk.h"
+#include "console.h"
 
 //#define DEBUG_MSD
 
@@ -513,7 +514,7 @@ static void usb_msd_handle_destroy(USBDevice *dev)
     qemu_free(s);
 }
 
-USBDevice *usb_msd_init(const char *filename)
+USBDevice *usb_msd_init(const char *filename, BlockDriverState **pbs)
 {
     MSDState *s;
     BlockDriverState *bdrv;
@@ -552,9 +553,8 @@ USBDevice *usb_msd_init(const char *filename)
     bdrv = bdrv_new("usb");
     if (bdrv_open2(bdrv, filename, 0, drv) < 0)
         goto fail;
-    if (qemu_key_check(bdrv, filename))
-        goto fail;
     s->bs = bdrv;
+    *pbs = bdrv;
 
     s->dev.speed = USB_SPEED_FULL;
     s->dev.handle_packet = usb_generic_handle_packet;
diff --git a/hw/usb.h b/hw/usb.h
index 4204808a00efea39c442b1ab7ac252808c2433b4..4cd832d492017e0d7446525d8834b4ad5623cdcd 100644
--- a/hw/usb.h
+++ b/hw/usb.h
@@ -21,6 +21,9 @@
  * OUT OF OR IN CONNECTION WITH THE SOFTWARE OR THE USE OR OTHER DEALINGS IN
  * THE SOFTWARE.
  */
+
+#include "block.h"
+
 #define USB_TOKEN_SETUP 0x2d
 #define USB_TOKEN_IN    0x69 /* device -> host */
 #define USB_TOKEN_OUT   0xe1 /* host -> device */
@@ -250,7 +253,7 @@ USBDevice *usb_keyboard_init(void);
 void usb_hid_datain_cb(USBDevice *dev, void *opaque, void (*datain)(void *));
 
 /* usb-msd.c */
-USBDevice *usb_msd_init(const char *filename);
+USBDevice *usb_msd_init(const char *filename, BlockDriverState **pbs);
 
 /* usb-net.c */
 USBDevice *usb_net_init(NICInfo *nd);
diff --git a/monitor.c b/monitor.c
index 2d1b86e3c75b5ae5e8636068bf55a0bd8b969f97..914938c7f68b0a42657e9ff47407b301f29ca2b3 100644
--- a/monitor.c
+++ b/monitor.c
@@ -76,6 +76,8 @@ static uint8_t term_outbuf[1024];
 static int term_outbuf_index;
 
 static void monitor_start_input(void);
+static void monitor_readline(const char *prompt, int is_password,
+                             char *buf, int buf_size);
 
 static CPUState *mon_cpu = NULL;
 
@@ -433,7 +435,7 @@ static void do_change_block(const char *device, const char *filename, const char
     if (eject_device(bs, 0) < 0)
         return;
     bdrv_open2(bs, filename, 0, drv);
-    qemu_key_check(bs, filename);
+    monitor_read_bdrv_key(bs);
 }
 
 static void do_change_vnc(const char *target, const char *arg)
@@ -494,9 +496,24 @@ static void do_stop(void)
     vm_stop(EXCP_INTERRUPT);
 }
 
+static void encrypted_bdrv_it(void *opaque, BlockDriverState *bs)
+{
+    int *err = opaque;
+
+    if (bdrv_key_required(bs))
+        *err = monitor_read_bdrv_key(bs);
+    else
+        *err = 0;
+}
+
 static void do_cont(void)
 {
-    vm_start();
+    int err = 0;
+
+    bdrv_iterate(encrypted_bdrv_it, &err);
+    /* only resume the vm if all keys are set and valid */
+    if (!err)
+        vm_start();
 }
 
 #ifdef CONFIG_GDBSTUB
@@ -2892,8 +2909,8 @@ static void monitor_readline_cb(void *opaque, const char *input)
     monitor_readline_started = 0;
 }
 
-void monitor_readline(const char *prompt, int is_password,
-                      char *buf, int buf_size)
+static void monitor_readline(const char *prompt, int is_password,
+                             char *buf, int buf_size)
 {
     int i;
     int old_focus[MAX_MON];
@@ -2923,3 +2940,22 @@ void monitor_readline(const char *prompt, int is_password,
                 monitor_hd[i]->focus = old_focus[i];
     }
 }
+
+int monitor_read_bdrv_key(BlockDriverState *bs)
+{
+    char password[256];
+    int i;
+
+    if (!bdrv_is_encrypted(bs))
+        return 0;
+
+    term_printf("%s (%s) is encrypted.\n", bdrv_get_device_name(bs),
+                bdrv_get_encrypted_filename(bs));
+    for(i = 0; i < 3; i++) {
+        monitor_readline("Password: ", 1, password, sizeof(password));
+        if (bdrv_set_key(bs, password) == 0)
+            return 0;
+        term_printf("invalid password\n");
+    }
+    return -EPERM;
+}
diff --git a/vl.c b/vl.c
index 0f06aa9fd246214582028a18739b8d10777fe37d..aaeff23faff9da8982d530207249e6d7d09561b6 100644
--- a/vl.c
+++ b/vl.c
@@ -201,6 +201,7 @@ ram_addr_t ram_size;
 int nb_nics;
 NICInfo nd_table[MAX_NICS];
 int vm_running;
+static int autostart;
 static int rtc_utc = 1;
 static int rtc_date_offset = -1; /* -1 means no change */
 int cirrus_vga_enabled = 1;
@@ -2607,11 +2608,13 @@ int drive_init(struct drive_opt *arg, int snapshot, void *opaque)
         bdrv_flags |= BDRV_O_CACHE_WB;
     else if (cache == 3) /* not specified */
         bdrv_flags |= BDRV_O_CACHE_DEF;
-    if (bdrv_open2(bdrv, file, bdrv_flags, drv) < 0 || qemu_key_check(bdrv, file)) {
+    if (bdrv_open2(bdrv, file, bdrv_flags, drv) < 0) {
         fprintf(stderr, "qemu: could not open disk image %s\n",
                         file);
         return -1;
     }
+    if (bdrv_key_required(bdrv))
+        autostart = 0;
     return drives_table_idx;
 }
 
@@ -2658,7 +2661,7 @@ int usb_device_add_dev(USBDevice *dev)
     return 0;
 }
 
-static int usb_device_add(const char *devname)
+static int usb_device_add(const char *devname, int is_hotplug)
 {
     const char *p;
     USBDevice *dev;
@@ -2675,7 +2678,18 @@ static int usb_device_add(const char *devname)
     } else if (!strcmp(devname, "keyboard")) {
         dev = usb_keyboard_init();
     } else if (strstart(devname, "disk:", &p)) {
-        dev = usb_msd_init(p);
+        BlockDriverState *bs;
+
+        dev = usb_msd_init(p, &bs);
+        if (!dev)
+            return -1;
+        if (bdrv_key_required(bs)) {
+            autostart = 0;
+            if (is_hotplug && monitor_read_bdrv_key(bs) < 0) {
+                dev->handle_destroy(dev);
+                return -1;
+            }
+        }
     } else if (!strcmp(devname, "wacom-tablet")) {
         dev = usb_wacom_init();
     } else if (strstart(devname, "serial:", &p)) {
@@ -2756,7 +2770,7 @@ static int usb_device_del(const char *devname)
 
 void do_usb_add(const char *devname)
 {
-    usb_device_add(devname);
+    usb_device_add(devname, 1);
 }
 
 void do_usb_del(const char *devname)
@@ -4334,45 +4348,6 @@ static const QEMUOption qemu_options[] = {
     { NULL },
 };
 
-/* password input */
-
-int qemu_key_check(BlockDriverState *bs, const char *name)
-{
-    char password[256];
-    int i;
-
-    if (!bdrv_is_encrypted(bs))
-        return 0;
-
-    term_printf("%s is encrypted.\n", name);
-    for(i = 0; i < 3; i++) {
-        monitor_readline("Password: ", 1, password, sizeof(password));
-        if (bdrv_set_key(bs, password) == 0)
-            return 0;
-        term_printf("invalid password\n");
-    }
-    return -EPERM;
-}
-
-static BlockDriverState *get_bdrv(int index)
-{
-    if (index > nb_drives)
-        return NULL;
-    return drives_table[index].bdrv;
-}
-
-static void read_passwords(void)
-{
-    BlockDriverState *bs;
-    int i;
-
-    for(i = 0; i < 6; i++) {
-        bs = get_bdrv(i);
-        if (bs)
-            qemu_key_check(bs, bdrv_get_device_name(bs));
-    }
-}
-
 #ifdef HAS_AUDIO
 struct soundhw soundhw[] = {
 #ifdef HAS_AUDIO_CHOICE
@@ -4639,7 +4614,6 @@ int main(int argc, char **argv, char **envp)
     int fds[2];
     int tb_size;
     const char *pid_file = NULL;
-    int autostart;
     const char *incoming = NULL;
     int fd = 0;
     struct passwd *pwd = NULL;
@@ -5637,7 +5611,7 @@ int main(int argc, char **argv, char **envp)
     /* init USB devices */
     if (usb_enabled) {
         for(i = 0; i < usb_devices_index; i++) {
-            if (usb_device_add(usb_devices[i]) < 0) {
+            if (usb_device_add(usb_devices[i], 0) < 0) {
                 fprintf(stderr, "Warning: could not add USB device %s\n",
                         usb_devices[i]);
             }
@@ -5748,13 +5722,8 @@ int main(int argc, char **argv, char **envp)
         qemu_start_incoming_migration(incoming);
     }
 
-    {
-        /* XXX: simplify init */
-        read_passwords();
-        if (autostart) {
-            vm_start();
-        }
-    }
+    if (autostart)
+        vm_start();
 
     if (daemonize) {
 	uint8_t status = 0;