Differential encoding techniques are fast and easy to implement. However, a major problem with the use of differential encoding for images is the rapid edge degradation encountered when using such systems. This makes differential encoding techniques of limited utility, especially when coding medical or scientific images, where edge preservation is of utmost importance. A simple, easy to implement differential image coding system with excellent edge preservation properties is presented. The coding system can be used over variable rate channels, which makes it especially attractive for use in the packet network environment.