You should enclose your code into "code" tags: either use square brackets, or click on Code.
Also, instead of parsing output of ls, it's better to use
Code:
for *.[jJ][pP][gG] ; do
steghide embed -p $watermarkpassword -cf "$file" -ef "watermark" -sf "`basename TAGGED_"$file"`"
done
To change the script to read the names from a file is easy:
Code:
#!/bin/bash
echo -n "Enter Password: "
stty -echo
read watermarkpassword
stty echo
echo " "
i=1
for *.[jJ][pP][gG] ; do
read watermark
echo $watermark > watermark
steghide embed -p $watermarkpassword -cf "$file" -ef watermark -sf $(printf '%02d.copyrighted.jpeg' $i)
let i++
done < watermarkfile
rm -f watermark
echo "Done"