Why does TrueCrypt and similair applications take hours to fully encrypt a 1 tb drive, while luks takes a few seconds?
Sorry if this is a dumb question, but I don't fully understand how that works.
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By default, luksFormat initializes the encrypted partition lazily, it only writes the LUKS headers and does not rewrite random data to the "empty space" of the encrypted partition when creating new partition. This means that you can create empty LUKS partition really quickly. Truecrypt by default initializes the entire partition with random data to the entire partition at creation time, for slightly better security.
Does LUKS actually fully encrypt data on a disk?
Yes it does.