Everyday incredible amount of data is produced and stored around the globe; it keeps growing. With technological advances, companies can manage and store the massive amount of data in-house or in the cloud. To avoid the storage bottleneck, they use various compression techniques. The compression ratio of modern compression technique is approaching a mathematical limit. We propose a novel lossless compression algorithm, which will redefine the new mathematical limit of lossless compression ratio. It can be used on top of existing data compression techniques to optimize the compression ratio. In this paper, we introduce a distributed Nth order binary encoding (DNOBE) method, which harnesses the smart cloud technology for encoding and data compression. This work is an improvement over Nth order binary encoding (NOBE) algorithm. DNOBE works in three stages, in the first stage it uses the hybrid method consists of probabilistic and deterministic approach for a sender side. Moreover, in the second stage on the server side (the high-performance server cluster in the cloud), it converts the given problem into a deterministic problem. In the final stage, the receiver decodes the compressed data.