I have a few questions:

1) By default do you use your ISP's DNS server?

2) Why would you have your own DNS server?

3) Is there more you can do with a DNS server then just match IPs into FQDN for easy remembering?

4) What do businesses use their DNS server for?

So as you are probably aware, DNS is used for host name resolution. If you are a typical Internet consumer, I can thin lot any reason why you'd host your own DNS server. Users typically will use their ISPs, or Public DNS systems.

You would set up your own DNS servers if you had a need to host zones, either intranet or Internet zones..very common for large organizations.

For small business or users with web sites, it makes sense to simply use your name registrars DNS systems. You are already paying for it in you name registration. These providers give you a DNS panel where you can create records and manage your zones. Plus, they have already invested quite a bit of money on creating a highly fault tolerant DNS infrastructure. It would be cost prohibitive for you to set up an equal service.

Can you do more than just map names to IPs? Well you can also do the reverse...IPs to names and there are also a bunch of other records you can create for you needs.

So in summary, the only reason I can think of for having DNS at home is if you were interested in learning more about DNS and you simply want to fiddle with it.

1.I do not use my ISPs DNS. It is slow and often times unreliable.
2. Because it is locally useful, fast, saves on network traffic, & reliable.
3. Answered well by JorgeM above
4. Small businesses use for the same reason I use mine.
Locally useful: I have internet domains set up in that labs I oversee with each computer having a local name(s). All the computers are behind a NATted router/firewall so will never be accessed directly from outside. With a DNS server I have the local names immediately available without having to change the host file on each computer.
Fast: After making a name resolution for a domain name it does not have in cache, it now has it in cache making a second name resolution practically instantaneous. (The app dig usually shows resolution times of cached data of 0ms.)
Savings on network traffic: If I resolve from my local DNS server, I don't use bandwidth on the internet. For slow network connections or where I have to pay per MB, every little bit helps.
Reliable: It is up whenever my gateway is up, which is more often than my ISP DNS server is up.
BTW, I use dnsmasq for my DNS server. It does not have the incredible flexibility of bind, but uses almost no resources.

When you set a alternate DNS server like 8.8.8.8, is that googles DNS server, and if something happens to your DNS will it use the google one?

I am not sure what your trying to accomplish and I do not have my own DNS server running yet, however I intend to install 2 DNS servers at home for this reason. 1. It is faster and saves on my bandwidth rescources. 2. I will be able to not only resolve web url's but also local ones. 3. I run www.gamerassembly.com out of my home as a gaming club and I have alot of different outside users directly connected to my network 24x7. This last is the biggest reason for two DNS machines and here is why. Gamers like me are power users and everything in the network is running behind NAT through PFSense. This adds a problem if more then one user wants to run there own webserver at home, you can only forward port 80 once. This is the way it works: Let’s use the following data for our setup. We have a webserver called webserver1 in our domain example.com with IP address 10.0.0.4. The public IP address of our NAT machine is 216.136.204.21. Now, somebody wants to view a webpage located on this webserver from the Internet. The webbrowser first performs a DNS lookup to find the IP address of the webserver. Because the webbrowser is not located on the LAN, but somewhere on the Internet, we want this to be the public IP address of our NAT machine. The webbrowser then sends a request to this IP address on the standard HTTP port (80). We now have to decide which server on the LAN to forward this request to. The NAT machine has no knowledge about the HTTP protocol, so it can’t forward the request to a webserver based on the HTTP request the webbrowser made. Therefore, it has to forward all HTTP requests to a specific server. This can’t be a webserver, because it would limit our number of webservers to one! To solve this problem, we shouldn’t have the NAT machine forward HTTP requests to a specific webserver, but to a proxyserver. This proxyserver does have knowledge about the HTTP protocol, so it can fetch webpages for the webbrowser based on the hostname present in the request. There is one problem however, the proxyserver must not fetch the webpage from the NAT machine (216.136.204.21), but from the webserver (10.0.0.4). So, the proxyserver should get another result (10.0.0.4) then the webbrowser (216.136.204.21) when looking up the IP address of webserver1.example.com. This leads us to setting up two nameservers. The first one listens to DNS requests on the standard DNS port (53) on the LAN, giving IP addresses in the 10.0.0.0/24 range. The second one listens to DNS requests on a non-standard port (let’s use 1053), always giving the IP address 216.136.204.21. The NAT machine should then forward DNS requests on its port 53 to port 1053 on the nameserver machine. To summarize, the attached file shows the steps performed when somebody requests the URL ht tp://webserver1.example.com/directory/file.html from a webbrowser on the Internet. We assume that 216.136.204.21 has been made authorative nameserver for the domain example.com: This information was copied from http://www.jansipke.nl/multiple-webservers-behind-one-ip-address/

When you set a alternate DNS server like 8.8.8.8, is that googles DNS server, and if something happens to your DNS will it use the google one?

Yes, this is OK if you do not host your own zones on your DNS server. If you would host a zone locally, and your server would fail, you would have an issue if the same zone wasn't hosted somewhere else.

This is an appropriate design for downstream cache-only DNS designs. Very common in the enterprise for small remote offices. A small office would have its own DNS and they would point to the central office as secondary in the event of a server failure but the WAN link remains online.

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