Engram

Engrams are crystals; that are encoded with the patterns of armor, weaponry and other as-yet-undisclosed items. There are five known types of Engrams: Encoded, Encrypted, Decoherent, Legendary, and Exotic.

Encoded Engrams are sold by the Cryptarch, and are coded with the patterns of known items, such as a particular section of armor or class of weaponry. Once purchased by the Player, the Engram is converted into a random example of that item by the Cryptarch. While decoding an Engram will generate a random item, it's still possible to know the type of item that will be discovered. Each Engram will indicate whether the item is armor, a primary weapon, a special weapon, a heavy weapon, or an item shaped like the Engram. The quality of the item is also identified, as Engrams use the same color coding as weapons and armor: White for basic, green for uncommon, blue for rare, purple for legendary, gold for exotic.

Encrypted Engrams are defined in-game as having "unusual properties". These must also be taken to the Tower where the Cryptarch will convert them if (in certain cases) only after he has attained the necessary Rank. The Cryptarch is also known to have these rarer Engrams for sale from time to time, which are more common if his skill is higher.

Engrams are also found as loot, and appear as colored crystals on the ground (white for encoded, green for encrypted, blue for decoherent, purple for legendary, yellow for exotic). Enemies may drop them randomly, or they may be picked up from boss encounters or inside chests. Any engrams that the player hasn't picked up may show up in the Postmaster's office.

Decoding Engrams
Engrams have a chance of being decoded into an item that is higher or the same quality as the engram itself. That item will almost always correspond to the type of engram it comes from; the exception to this is that sometimes a rare engram will decode into a Mote of Light or Strange Coin instead. Also, certain items will never be decoded from an engram and can only be acquired a certain way; this applies to any item acquired through a raid, exotic bounty, the Iron Banner, Trials of Osiris, or as a reward for a story mission.