NTFS, short for NT File System, is the most secure and robust file system for Windows NT, 2000, and XP. It provides security by supporting access control and ownership privileges, meaning you can set permission for groups or individual users to access certain files. There are currently two versions of NTFS being used in Microsoft operating systems. NTFS 4.0 is the file system used with Windows NT 4.0. NTFS 5.0 was released with Windows 2000, and is also being used in Windows XP. NTFS 5.0 provides some additional capabilities which were not included in NTFS 4.0. Both versions of NTFS share the following features: NTFS supports compression of individual files and folders which can be read and written to while they are compressed. NTFS is a recoverable file system, meaning it has the ability to undo or redo operations that failed due to such problems as system failure or power loss. NTFS supports Macintosh files. In addition to the above features, NTFS 5.0 (used with Windows 2000 and XP) also provides the following functionality: Disk quotas: Administrators can limit the amount of disk space users can consume on a per-volume basis. The three quota levels are: Off, Tracking, and Enforced. Encryption: The NTFS 5.0 file system can automatically encrypt and decrypt file data as it is read and written to the disk. Reparse points: Programs can trap open operations against objects in the file system and run their own code before returning file data. This feature can be used to extend file system features such as mount points, which you can use to redirect data read and written from a folder to another volume or physical disk. Sparse files: This feature allows programs to create very large files, but to consume disk space only as needed. USN Journal: This feature provides a persistent log of all changes made to files on the volume. This feature is one of the reasons that the Windows 2000 domain controller must use an NTFS 5.0 partition as the system volume. If you are attempting to set up a dual-boot between Windows NT 4.0 and Windows 2000 or XP, you must have at least Service Pack 4 for Windows NT installed. When installing Windows 2000 or XP, all NTFS partitions are converted to NTFS 5.0. Without Service Pack 4, Windows NT cannot recognize NTFS 5.0, and therefore the computer would be unable to boot to Windows NT. You should also note that the additional capabilities of NTFS 5.0 are available only in Windows 2000 and XP, and these features will not work in Windows NT. Regarding the performance of FAT and NTFS, FAT performs better on smaller volumes, but NTFS out-performs FAT on larger volumes, beginning around 500MB.
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