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A Dynamic Host Configuration Protocol (DHCP) server is a device or system which controls DHCP. It assigns IP addresses to client computers that connect to it in order for those clients to become part of the network. The DHCP server considerably reduces configuration efforts because an administrator does not have to manually assign each computer with IP addresses and other IP-related settings.
Pieces of network equipment are often DHCP servers themselves. This makes sense since most networking equipment, especially routers, are connected to all clients and they serve as the best hubs for giving out DHCP leases to client computers. This can also be done by computers and even virtual machines that have been set up to act as DHCP servers. A good example of this is a domain controller in a Windows network; it can act as a DHCP server, giving out DHCP leases to client computers as well as act as authenticator for security and identity.