The best way is to make multiple copies on multiple storage mediums and regularly check for any data degradation. There is no one single format that will last long term. Everything has a chance of failure for an infinite number of reasons.
You only need to store one TB, just buy a pair of 2TB hard drives, check the data yearly, and then whenever the warranty expires buy some new drives and copy the data over. That's about as simple and safe as it'll be for you.
Don't ever use hardware acceleration for encoding video ahead of time. It produces the same quality for much higher file size, or lower quality for the same file size, as software encoding.
On the fly transcoding is fine for GPU since it's transient, but if you're preparing ahead of time, only software encoding.
That being said, it's entirely up to you. Get some short 30-90s clips of your library, encode them with different settings, and see what you like and what the file sizes are. Then make a decision.
That's not what fragmentation or defragmentation means.