With the latest technological advancements and attractive features of next generation intelligent optical networks such as high bandwidth, low power consumption, and low transmission loss, etc., they have been considered as most viable solution to satisfy promptly growing bandwidth demands. However, main optical network components bring forth a set of security challenges and reliability issues, accompanied by new vulnerabilities within the network. This paper proposes a new design for an optical encryption and decryption method for enhancing optical network security using p-i-n photodiode which generates Pseudo Random Binary Sequence (PRBS) as a shot noise fluctuations and wavelength converter based design using Semiconductor Optical Amplifier (SOA) based XOR gate which utilizes Cross-Phase Modulation (XPM). The system performance based on Bit Error Rate (BER) and Q factor are analyzed at different data rates for different link lengths up to 100 km using OptiSystem. It is observed that error free transmission with a BER of 10-12 is achieved a data rate of 10Gbps for a link length of only 30 Km for the system with PIN photodiode’s shot noise being used for PRBS sequence generation. However, wavelength conversion based system enables transmission of signal at 10Gbps signal up to a link length of 90Km.