Is this the correct lifecycle rule to delete all old versions of objects from my bucket and only keep the current version?
Also will this work on my entire bucket or only on objects added to it?

Yes, that seems correct.
Note that "1 day after" literally means "during the first background purge operation that occurs at least 24 hours after," so objects may linger for anywhere between 24 and 48 hours. If there are a large number of objects, it will take longer, but you aren't billed for the time to store the objects past their expiration.
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