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Difference between an instance and database in Oracle

The terms 1)instance and 2) database are often used interchangeably, or otherwise slightly abused, in spite of the fact that they each have distinct meanings. I think the reason for this lies with human nature, and our penchant for being somewhat lazy. It's very cumbersome to always say “I started an instance and opened the database.” That does not roll off the tongue too well. It's certainly a lot easier just to say “I started the database.” People who have used Oracle software for years, even those who work for Oracle, will tend to be somewhat lax in their use of these terms, and that's OK--so long as both sides understand what's being said. Still, there are times when precision is important. So make sure that you understand that a database is just the files, and that an instance is processes + memory.

Overview of the Oracle Instance

An Oracle database server consists of an Oracle database and an Oracle instance. Every time a database is started, a system global area (SGA) is allocated and Oracle background processes are started. The combination of the background processes and memory buffers is called an Oracle instance

Oracle Database Architecture

An Oracle database is a collection of data treated as a unit. The purpose of a database is to store and retrieve related information. A server reliably manages a large amount of data in a multi-user environment so that many users can concurrently access the same data. All this is accomplished while delivering high performance and a database server also prevents unauthorized access and provides efficient solutions for failure recovery.
The Oracle Database is the first database designed for enterprise grid computing, the most flexible and cost effective way to manage information and applications. Enterprise grid computing creates large pools of industry-standard, modular storage and servers. With this architecture, each new system can be rapidly provisioned from the pool of components and there is no need for peak workloads, since capacity can be easily added or reallocated from the resource pools as needed.
A database consists of logical structures and physical structures. Because the physical and logical structures are separate, the physical storage of data can be managed without affecting the access to logical storage structures.