Little free librarys are boxes of free things (books, movies, etc.) in many neighborhoods. They aren't actual libraries. You're expected to take something and leave something else, generally.

I mean encoding in the sense that it takes PCM data and uses a compression algorithm (flac) to make losslessly encoded/compressed files capturing a perfect copy of what was on the disk. So sure, there's a decoding from CD grooves step and then an encoding to flac step technically.