Instance: A running database is called Instance. Instance consists of Memory structures (SGA) and Background processes (SMON, PMON,LGWR etc). Instance only exists when a database is up and running. In normal situations, a database is managed by one instance. In RAC multiple instances can be started for a single database. Each instance is identified by a unique identifier called ORACLE_SID
Database resides on disk whereas Instance resides on Memory
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