CI 2.1.0 to CI 3.0.x upgrade - Replacing "encrypt" with the "encryption" library

Your understanding is correct.

Compatibility implications depend on the algorithms used, and the seed for any given piuece of encrypted data.

In the worst case, you would need a small script to decode() data using Encrypt and then encrypt() it using Encryption.
I am not sure if anyone in the community has been through this, and might offer additional insight.