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File-Sharing Dictionary
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Dictionary Entry - Encoding/Encoder
Taking information and applying an algorithm to it to alter it's data in a way that is beneficial for some purpose. Usually this refers to taking a raw media file and compressing it to make the file size smaller.

For example, a 32 MB .wav file may be compressed down to 5 MB using the MP3 encoding (128 Bitrate.)

The same theory applies to encoding video, where a raw dvd or mpeg file is compressed using divx or another encoding technology.

Encoder refers to the program that must be present to take the raw data and transform it. This is usually distributed in the form of a codec (ecCOder/DECoder.)
More info : Nimo Codec Pack Homepage
Dictionary Entry - Encoding/Encoder

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