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Someone sent you a .7z file and your computer doesn't know what to do with it. Neither Windows nor macOS includes 7Z support out of the box, which is the format's main limitation and the reason most people use ZIP instead. But if you need the smallest possible archive, 7Z wins.
7Z uses the LZMA2 algorithm, which achieves noticeably better compression ratios than ZIP's Deflate or RAR's proprietary method — files come out smaller, sometimes significantly so. It supports AES-256 encryption (stronger than ZIP's default) and solid compression (treating multiple files as a single data stream for even better ratios). The format is open-source and maintained by Igor Pavlov, the same developer behind the 7-Zip application.
7-Zip (free, open-source, Windows) is the definitive tool for creating and opening 7Z archives. PeaZip (free, all platforms) also handles them. The Unarchiver (free, macOS) opens 7Z files for extraction. For sharing archives with others, use ZIP — it's universally compatible. For archiving files where size matters more than convenience, 7Z is the better compressor.