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What is true bypass switching and why is it an important effects pedal feature?  In the early days of effects pedals, only a single set of contacts were used to switch between modes.  The configuration looked like this:
What is true bypass switching?


Effect
Switch
Input
Output
The problem with this scheme is that the input of the effect loads the guitar signal, since it is always connected.  This isn't a problem when the effect is active, but it can be an issue in bypass mode.  This is especially true if you have a number of effects connected together, since the individual loads combine.

So what can you do?  One possiblilty is to buffer the guitar output, but the additional active circuitry may increase the noise floor.  The simplest and best approach is true bypass switching.

True bypass switching uses two sets of contacts to switch both input and output as shown below:



Effect
Switch
Input
Output

Switch
When true bypass switching is used, the effect is completely removed from the signal path while in bypass mode.  As a result, the natural tone of the guitar signal is preserved.
Bypass Path
Let's talk about the different types of effects.  Effects can be classified into groups.  There are compression and equalization effects, as well as distortion and overdrive effects.  We also have time domain effects which include phasing, flanging, chorusing, and delay.  Last, there are reverb units that simulate room acoustics.

A compressor is a device that limits (or compresses) the dynamic range of a signal.  Dynamic range is simply the difference between the loudest   and the softest sound.  Compressing a guitar signal makes the volume more consistent and greatly increases the sustain.  When a note is first played, the compressor automatically reduces the volume.  As the note rings out and begins to decay, the compressor gradually adds volume back to maintain a relatively constant output level.

Equalization is another word for filtering.  A filter is a device that provides different gains (volume levels) at different frequencies.  In music, frequency is represented by pitch (or note).  For example, concert "A" note has a frequency of 440 Hertz.  An octave above concert "A" has a frequency of 880 Hertz and an octave below concert "A" is 220 Hertz.  Bass, treble, midrange, and presence are all examples of filters and are used for equalizing (EQ'ing) the signal.  Equalizing is not to be overlooked because it has a huge impact on tone.

Next are the non-linear effects like distortion, overdrive, fuzz, and the like.  All of these devices saturate or clip the guitar signal, and harmonics are added as a result.  The additional harmonics add new color and texture to the sound.

Time domain effects add a spatial dimension to the tone.  Phasing and flanging produce an effect by adding a delayed replica of the signal to the original signal.  The amount of delay varies with time.  Flanging originated in recording studios by playing back two identical recorded tracks and altering the timing between them by applying pressure to the tape reel flange.  Chorusing is similar except that the alterations produce a Doppler effect which simulates the pitch variations found in a choir.  Last, delay effects are created by adding long delayed versions of the signal to the original signal.  Also, a portion of the output signal can be fed back to the input to create echos.
Effects 101