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In this work we examine how transparent compression in the I/O path can improve space efficiency for online storage. We extend the block layer with the ability to compress and decompress data as they flow between the file-system and the disk. Achieving transparent compression requires extensive metadata management for dealing with variable block sizes, dynamic block mapping, block allocation, explicit work scheduling and I/O optimizations to mitigate the impact of additional I/O sand compression overheads. Preliminary results show that online transparent compression is a viable option for improving effective storage capacity, it can improve I/O performance by reducing I/O traffic and seek distance, and has a negative impact on performance only when single-thread I/O latency is critical.