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The simplest way to digitally encode audio signals is [[pulse-code modulation]] (PCM), which is used on [[audio CDs]], [[Digital Audio Tape|DAT]] recordings, and so on. Digitization transforms continuous signals into discrete ones by sampling a signal's amplitude at uniform intervals and rounding to the nearest value representable with the available number of bits. This process is fundamentally inexact, and involves two errors: ''[[discretization error]],'' from sampling at intervals, and ''[[quantization error]],'' from rounding.
The more bits used to represent each sample, the finer the granularity in the digital representation, and thus the smaller the error. Such ''quantization errors'' may be thought of as a type of noise, because they are effectively the difference between the original source and its binary representation. With PCM, the only way to mitigate the audible effects of these errors is to use enough bits to ensure that the noise is low enough to be masked either by the signal itself or by other sources of noise. A high quality signal is possible, but at the cost of a high [[bitrate]] (e.g., over 700 [[kbit/s]] for one channel of CD audio). In effect, many bits are wasted in encoding masked portions of the signal because PCM makes no assumptions about how the human ear hears.
More clever ways of digitizing an audio signal can reduce that waste by exploiting known characteristics of the auditory system. A classic method is nonlinear PCM, such as [[mu-law]] encoding (named after a perceptual curve in auditory perception research). Small signals are digitized with finer granularity than are large ones; the effect is to add noise that is proportional to the signal strength. Sun's [[Au file format]] for sound is a popular example of mu-law encoding. Using 8-bit mu-law encoding would cut the per-channel bitrate of CD audio down to about 350 kbit/s, or about half the standard rate. Because this simple method only minimally exploits masking effects, it produces results that are often audibly poorer than the original.
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