An algorithm or technique for compacting (and expanding) digital data is disclosed in which the data is broken up into words or lexemes. The words are entered into a push-down list as they are received and, if already on the list, a list location identifier is transmitted and the word moved to the top of the list. The last word on the list falls off the list when a new word is entered at the top and thereafter is treated as a new word. The data expander maintains identical lists and substitutes the data word for the list location code when received. Both hardware and software implementations are disclosed.