Widespread adoption of Quantum Key Distribution (QKD) in current telecommunication networks will require the development of simple, low cost and stable systems. Current QKD implementations usually include separate sub-systems to implement auxiliary tasks such as temporal synchronization and polarization basis tracking. Here we present a QKD system with polarization encoding that performs synchronization, polarization compensation and QKD with the same optical setup without requiring any changes or any additional hardware. Polarization encoding is performed by a self-compensating Sagnac loop modulator which exhibits high stability and the lowest intrinsic QBER ever reported by an active polarization source fully implemented using only commercial offthe-shelf components. We tested our QKD system over a fiber-optic channel, tolerating up to 43 dB of total losses and representing an important step towards technologically mature QKD systems. * These authors contributed equally to this work.