Hi,
the software based encryption is licensed feature in Data Protector.
The hardware based encryption does not require a license in Data Protector.
If possible, I would prefer the hardware based encryption, as there is no performance impact. The data are streamed to the drive, are compressed and encrypted as the last step. However, hardware based encryption will not work for your LTO 3 drives, as this feature was introduced with LTO 4.
Software encryption requires some resources on the client (DA), the performance impact depends on data and on client.
Best regards
Daniel