Is the encryption bit of the HIVE key hierarchy actually used by any application at the moment? I'm currently working on the coinZdense project, a slow moving multi year project that aims to provide a quantum-computing resistant replacement for ECDSA signatures for key-reuse-by-design chains like HIVE, and so far everything in my project is just about signing and I haven't factored in any hooks for encryption because I was under the strong impression that encryption keys remained an unused feature, even in HIVE, that technically supports it.
If there are actual HIVE DApps and/or tools plus a user base that use it though, I might need to support at least hooks for master-key to raw encryption-key derivation.
I don't have an answer for your question. I don't even fully understand it. :) I am just getting started with learning encryption. I would recommend asking the wizard of Hive, @gtg who knows everything on this topic.