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When a file is dropped into Dropbox's sync folder, is that file actually still stored locally on my hard drive, or is it some type of hologram?

I keep a number of ebooks synched across devices with Dropbox, but not "directly" storing them on Dropbox.

If I have C:\book.pdf and D:\Dropbox. If/when I make changes, I copy updated book.pdf to the Dropbox folder. This updates the cloud version, and then I have to manually redownload and save it on my tablet.

Could I just keep my ebooks entirely in the D:\Dropbox, opening/editing directly from the Dropbox folder, or is this ill-advised?

Potential problems -- If the file isn't really "there" locally (linked instead), will I lose access if internet goes down? Will minute, incremental saves cause an instant re-upload of the entire file each time?

(Using Dropbox's program on Windows 7 x64)

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When a file is dropped into Dropbox's sync folder, is that file actually still stored locally on my hard drive

The file is stored on your local drive and dropbox transmits it to the server as well.

Potential problems -- If the file isn't really "there" locally (linked instead), will I lose access if internet goes down? Will minute, incremental saves cause an instant re-upload of the entire file each time?

The first point isn't true, since the file is available on your local drive. Dropbox can & will resume uploads & downloads, and it also does a diff of the 2 files and reuploads only the incremental changes than the full file

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Ah, great to know. So just to clarify -- If I have a 20MB PDF file, and I add an annotation comment to a page, Dropbox will be able to only upload the extra data of that one comment/annotation, and not have to reupload the whole 20MB shebangarang? –  Coldblackice Feb 28 '13 at 23:12
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@Coldblackice theoretically, yes - practically diffs may not work well with binary files –  Sathya Mar 1 '13 at 4:30
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Thanks. How come? Is it because the structure of the file would shift around enough, adding/subtracting enough bytes, that it would be difficult to compare the two? (vs. honing in on a few specific bytes that are changed) –  Coldblackice Mar 1 '13 at 11:34
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