Abstract: A data compression/decompression processor (a single-chip VLSI data compression/decompression engine) for use in applications including but not limited to data storage and communications. The processor is highly versatile such that it can be used on a host bus or housed in host adapters, so that all devices such as magnetic disks, tape drives, optical drives and the like connected to it can have substantial expanded capacity and/or higher data transfer rate. The processor employs an advanced adaptive data compression algorithm with string-matching and link-list techniques so that it is completely adaptive, and a dictionary is constructed on the fly. No prior knowledge of the statistics of the characters in the data is needed. During decompression, the dictionary is reconstructed at the same time as the decoding occurs. The compression converges very quickly and the compression ratio approaches the theoretical limit. The processor is also insensitive to error propagation.