Warning, major photo geek article to follow...
I'm always in search of the most efficient way to store and process my digital images. A big part of being a photographer is the DAM workflow. The more I shoot, the more space I need and the more organized I need to be. All these photos can get out of control. Now, before I go on, let me define two terms. DAM = Digital Asset Management and DNG = Digital Negative.
Currently I use Lightroom 4 to edit and manage my images and Photoshop CS5 to do additional editing as needed. When importing photos from my camera to Lightroom, the files are the Canon version of RAW - CR2 (NEF for Nikon). These are large files and at times slow to open and work with. I remember the days when digital files had "sidecar" files that stored the edit data. These we called XMP files and resulted in increased storage space. Those were a pain to keep up with. Depending on the application you use for image editing, you may still see XMP files in your RAW file folder. Over the past few years I've heard of a newer, more efficient file format called DNG. Early on there were challenges with this format and the kinks had not been worked out. But that has changed. I was still skeptical but recently have become a convert.
A DNG file is also a RAW file except that it is an Adobe proposed standard and not tied to a specific camera manufacturer. The file contains the RAW image, a JPG preview and the edit data...yet it is generally a smaller file than a standard RAW file. The file can be made even smaller if the JPG preview is not included. DNG is based on the TIFF format and supports a wide range of metadata formats such as EXIF, XMP and IPTC.
I converted a few CR2 files over to DNG and noticed no degradation to the file or quality and I noticed a decrease in file size. This file size reduction is one of the major draws to DNG for me. So the three basic reasons to switch are compatibility, simplicity and size. Compatibility with more software programs, simplicity of file management and a reduction in file size. Based on these reasons, I have (as of this morning) converted all my 2012 library CR2 files to DNG. This freed up quite a few GBs of space on my local and external drives. So far, I'm glad I made the switch!