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FAT32 and NTFS are two different file systems or ways of storing data on hard disks. Each have pros and cons. I tend to prefer NTFS, and explain why.
I have Windows XP Pro on my computer, but both of my drives' file systems are FAT32. Should I change them to NTFS so that I can take advantage of certain features, like Windows-based encryption (instead of third party applications)?
I tend to prefer NTFS over FAT32, though that even represents a change for me in recent years. There are a couple of reasons I've come to prefer NTFS, but I can tell you one thing:
Windows native encryption is not one of them.
I prefer NTFS for several reasons:
NTFS stores dates and times in GMT rather than local time. This can be incredibly important for file transfers and interoperability with other systems, particularly around daylight savings time changes, or if you ever move your machine from one time zone to another.
NTFS uses disk space more efficiently. The default "cluster size", which is the increment of disk space set aside for each file, can be smaller in NTFS on larger drives. Without getting into all the gory details of what clusters are and how disk space is allocated, the (grossly oversimplified) example is that a file of 1 byte in length can actually cause 32k of disk space to be set aside for it in FAT32 whereas only 512 bytes might be required on NTFS.
NTFS is slightly faster on average. I know, I'll get disagreement on this, since FAT32 can in fact be faster in certain circumstances. In reality unless you're doing something very disk intensive, you won't notice.
NTFS allows per-user security permissions. That means that if I want to, I can restrict who by login account is allowed what access to specific files or folders.
There are other differences, both minor and major, but those are the biggies for me.
The arguments for FAT32 have, by and large, become few and far between. Originally I was concerned that there was no boot media that could read a NTFS drive for data recovery, but that has long since passed with various solutions now available.
The one scenario where there's still a fairly compelling argument for FAT32 is dual boot systems that run both Linux and Windows. Linux currently only handles reading NTFS partitions. If you want a partition to be shared between Windows and Linux on the same computer, then you probably want it to be formatted FAT32 so both systems can read and write to it without problem.
Now, there's one thing you've mentioned that I specifically want to address, and that's Windows-based encryption. I avoid it.
Understand that I'm certain that it's fine and secure encryption mechanism. I expect it's fast, and obviously once selected it's very easy to use.
My objection is simple: the encryption keys are tied to your login account. If you lose your login account then you're in trouble. Just recreating the account won't work even with the same name it's a different account under the hood. Recovery may still be possible but difficult for the average user. In fact, it can be even more difficult, perhaps even impossible, if it's the administrator account that you've lost.
My fairly strong preference is TrueCrypt. TrueCrypt encrypts using a pass phrase that you can make as simple or complex as you like. All you need do is remember it. It's not tied to any login account. In fact, it's not even tied to the machine or the operating system. TrueCrypt encrypted volumes can be securely copied to other machines and even other operating systems.
But of course, if you forget your pass phrase, then you've still lost your data.
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