Explain how we know when a chat is encrypted?
Or are they always encrypted by default, regardless of contact verification status?
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If encryption is on, then it is encrypted. It is required that the other person you are chatting with is also using an encryption-enabled app, like ChatSecure, Xabber, Pidgin, Adium, etc... so when it shows "On" or in the new v13 beta a locked icon, it is encrypted.
Verified just means that you have taken an extra step to ensure no one is trying to intercept your encrypted messages.