Is the software with this device compatible with Mac's Time Machine?

You will need to reformat the drive to HTFS+ which is easily done with disc utility. Time Machine can not back up to FAT32. Macs come with all the software needed already installed and it's easy. There's no need to use 3rd party software.

Does it show up like a drive with a letter when you plug it in? Like the old external drives used to.

Your operating system will auto assign a drive letter to any storage device detected. So, in Windows - Yes, ALL Windows versions will auto assign a drive letter. Once connected you have the option to assign a drive letter to it for all future connections (like P: for portable) rather than take the default.

Will this drive work with the Xbox one? My main concern is that this drive is unformatted, and most compatible are shown as NTFS. I would think that since the Xbox automatically re-formats the drive during initial installation unformatted, NTFS and FAT32 would all work, is this correct as well?

Yes. I've been using the 1TB version on my Xbox One for at least six months now with no issues. I had the Xbox format it, just in case, before use. The downside of USB-powered drives is that its max RPM is 5400, so the install and load times are slower than the on-board drive. If you want faster install and load times of your files/games, you'd have to get a 7200RPM driver, however those need external power (In other words, they have a wall wart which could be unsightly or you might not have an outlet available nearby.)

how does data encryption work?

Encryption is basically encoding information in a way that only the person or computer with the key can decode it. Algorithm's provides the directions and gives a certain range of possible combinations to create the encoded message. A key is a sequence of digital bits that works with an algorithm to encrypt and decrypt the message. basically if you have something on the external hard drive that you don't want others to see if it was stolen or for any other reason encryption keeps them out. you need the key to be able to look at the items / files on the drive.

RAM	2048 GB
Hard Drive	2 TB Mechanical Hard Disk
National Stock Number	0
Brand	Transcend
Series	SJ25M3
Item model number	TS2TSJ25M3S
Hardware Platform	Mac, PC
Operating System	Microsoft Windows 7, Microsoft Windows 8, Microsoft Windows 10, Mac OS X 10.7 or later, Linux Kernel 2.6.31 or later
Item Weight	6.6 ounces
Product Dimensions	5.1 x 3.24 x 0.74 inches
Item Dimensions LxWxH	5.1 x 3.24 x 0.74 inches
Color	Iron Gray
Number of Processors	1
Flash Memory Size	2
Hard Drive Interface	USB 3.0
Hard Drive Rotational Speed	5200 RPM
Batteries	1 Lithium Ion batteries required.
Manufacturer	SILICON POWER COMPUTER AND COMMUNICATIONS USA INC.
Language	English
ASIN	B07B4KXTQK
National Stock Number	0
Is Discontinued By Manufacturer	No
Date First Available	February 1, 2018

Transcend 2TB SJ25M3, USB 3.1 Portable Hard Drive Rugged, Anti-Shock Resistant, Compact and Lightweight with Lightning-Fast Speeds, One Touch Backup Button, Iron Gray - TS2TSJ25M3S

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