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Gzip is a lossless file compression tool that reduces the size of data files without losing any information. It works by identifying repeated sequences in a file and replacing them with metadata or shorter sequences. This process reduces the total amount of bits needed to represent the information. Gzip was developed in 1992 by Jean-Luc guys and Mark Alder as an alternative to existing compression technology held by big tech corporations. Unlike lossy compression algorithms like JPEG, gzip ensures that no information is lost during the compression process.