If you look at the rear of a Grayhill mechanical encoder you will see that the terminals are numbered as shown in the figure. There is a common terminal and four additional terminals that could also be referred to as “bits” . The four bits are called the 1-bit, 2-bit, 4-bit and 8 bit. The deck section of the encoder is set up as follows: In position 0, the common bit is not connected to any other bit. This produces the code output zero as shown in the table. However, if the encoder is rotated to position 7 for example, the common is connected to the 1-bit, 2-bit and 4-bit. Notice how 1 plus 2 plus 4 equals 7. This is how the output code is generated. In fact, a four terminal or 4-bit encoder can generate 16 unique output codes as shown in the table. This particular 16 position code is called hexadecimal code.