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TrueCrypt allows the user to create an encryption volume on a file or a device hosted encryption on a drive or partition.What is advantage or disadvantage of one over the other?

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up vote 10 down vote accepted

Partition pros:

  1. It's harder to accidentally delete a partition. :)
  2. Necessary when encrypting the entire operating system.

File pros:

  1. Files are easier for many people to understand.
  2. Files are easier to move/copy.
  3. You can use the rest of the partition for other files (like the traveler mode files)
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The other option that TrueCrypt provides is to create "headerless" file containers inside either encrypted partitions or other file containers, thus hiding even the existence of the file-within-a-file for maximum deniability; the only way someone can know it's there is...well, to know it's there. Combines all the advantages (and disadvantages) of both methods.

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Just to expand upon Jeremy's second file 'pro': you can share file-based encrypted volumes, which includes hosting them online on a service like Dropbox, which is a great way to share sensitive information and to create secure backups, or even to access sensitive information with other computers you use.

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File Pro: You can use a file over NAS. I have a TrueCrypt volume mounted from my ReadyNAS. It's not the fastest but works for well enough for what I need.

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To add to Jeremy's answer. Full disk partition (aka full Hard-drive encryption) is only supported for Windows (Vista, XP, Server 2003, & Server 2008). So if you want full disk encryption for Macintosh or Linux, you are SOL.

One advantage that file encryption has over partition/device is simply the fact that you can synchronize that file between computers. Here is an example where it would come in to play:

You have a KeePass database, spreadsheet with Tax information, other miscelanous important documents that you want to backup onto multiple systems but want to ensure that they remain secure. Well you could create a 1GB (Or whatever size) Truecrypt file in which you can store these things. Once created, you can synchronize the file between computers easily using a product like DropBox.

I hope this has helped.

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Use full disk encryption if possible. That way swap files, web browser cache, etc. are also encrypted.

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