What exactly is DNS provider, and how does it work?
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It is a server or group of servers containing a table of network domain names and their associated numeric IP addresses. A DNS server takes them from other upstream or authoritative servers, makes a copy and allows other clients to contact it to obtain this information. If a DNS server is placed on a local network, then the number of requests that have to be made outside is reduced.
You need domain names to have more easily memorable addresses, or to provide multiple names for virtual servers on the same address.
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