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An analog-to-digital converter is any device that converts analog signals (continuous quantity) into digital signals (discrete time digital representation). The analog signal is a continuous sinusoidal wave form that cannot be read by a computer, hence the need for conversion. By converting the analog signal, data can be amplified, added or taken from the original signal.
The usual conversion process makes use of a comparator, where at some point, the value of the input analog signal is compared to a standard, so the converter will know if the input warrants a high or low signal. In the case of audio digital conversion, the amplitude or volume is constantly measured, and the output is a list of binary data that contains sound wave values.
Typically, only a single chip does most of the conversion. The rest of the components are for other functions.
The signals are often in electrical form, as in the case of a modem or cable TV. Phone line or cable signals are analog; the modem demodulates a signal and converts it into digital signals, so that the computer or the digital TV can understand them.