No Proxy hard drives are not data encrypted.
SGOS is a proprietary operating system and uses no file system, thus the contents of any hard drive cannot be easily read without proprietary, in-house tools only available to Blue Coat. There is no on-the-fly encryption done to the contents of the disks. However, that is not to say the contents cannot be read – merely that the contents are unlikely to be read.
While Blue Coat destroys the contents of all received hard drives up to United States DOD sanitation specifications (DOD 5520.22M), if a drive were to become lost or stolen during shipment, there does exist a nonzero chance that the contents could be deciphered and reassembled.
It is our recommendation that any organization which values the integrity of the contents of a disk more than the cost of keeping and paying for that disk to do so. Many government, military, financial and health customers of Blue Coat choose to keep and destroy any disks as they see fit.