A system stores data in data units in a cluster in a cloud computing system, the data stored in the data units being encrypted or unencrypted depending on whether encryption is enabled or disabled when storing data in the data units. The system identifies one or more data units to defragment and defragments the identified data units by writing the data from the identified data units to one or more new data units and by releasing the identified data units for storing new data. The system encrypts unencrypted data from the identified data units when writing the data from the identified data units to the one or more new data units.