I also upgraded to the latest fscrypt which supports policy_version 2,
and I confirm that snap upgrades work without issues of losing user
settings.

But I still have an issue with hidden files. The issue is the following:
I'm trying to install a Chromium extension from a folder in my home
directory. When the directory isn't hidden, it's being installed
successfully. But when I make the directory with extension hidden and
try to install it, the Chromium file dialog says: Error opening
directory: Permission denied.

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https://bugs.launchpad.net/bugs/1768340

Title:
  fscrypt does not work for home directory encryption

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