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Is there any way to create a thumbnail on the fly without storing it as a file? What I can't figure out is not how to create a thumbnail with IM, but how to create it and display to the user without storing that new image as a file. Is it even possible with IM?
It's possible alright .. but it's a really bad idea. Working with images is very intensive .. especially resampling them .. there's no good reason not to cache results to save CPU time.
Creating images on the fly without saving them greatly reduces the number of users you can have on the server at any given time and it will take longer to load any page that contains these images.