One of the more interesting--and less visible--new features in Mountain Lion is the ability to encrypt almost any disk. OS X has long offered the ability to encrypt your startup disk using Apple's FileVault, but Mountain Lion extends this feature to other disks, even to simple USB flash drives. Here is an overview of how this feature works, how you can encrypt and decrypt a disk, and what options you have when doing so.
Encrypt a disk from the Finder
This new full-disk encryption feature is well hidden in Mountain Lion. Typically, you use Apple's Disk Utility (in /Applications/Utilities) to work with hard disks or other types of removable media. Disk Utility can erase, partition, and repair hard disks, but curiously, it cannot encrypt a hard disk.
Control-click to encrypt
To encrypt a disk, instead right- or Control-click on a hard disk's icon on the Desktop, or in a Finder window sidebar. Choose Encrypt Disk Name and enter a password. You'll have to enter the password a second time, and you won't be able to go any further unless you also enter a password hint. You need to choose a good, secure password, but it shouldn't be something too complicated.
You'll most likely use the encryption feature for a portable disk you carry around with you. When you connect the disk to your Mac, or to someone else's Mac, you'll need to remember the password to access the files. When you use the disk with your Mac, or, say, a Mac at work, you can store the password in the keychain.
Expect a wait
After you've entered your password, and clicked on Encrypt Disk, you'll have to wait. Depending on how big your disk is, your wait could be a few minutes or several hours. In my tests, I found even a 1GB flash drive took several minutes to encrypt. Unfortunately, there is no progress bar, so you have no way of knowing how long this process will take. The only way to be sure something is happening is if the disc has an LED that flashes as it is being read or written to. For this reason, if you are encrypting a large hard disk, you may want to let the process go overnight.
When the disk is finished encrypting (the blinking light on your drive will be your clue), eject it as you would any other disk. When you next connect it to your Mac, a dialogue box will display asking you to enter your password. You can select Remember This Password In My Keychain if you wish to use this disk often and don't want to have to enter the password every time. If you forget the password, click on Show Hint to see the hint that you recorded. Click on Unlock to allow OS X to decrypt the disk.
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