This circuit is a digitally controllable electronic potentiometer. The heart of the circuit is a 16 channel analog multiplexer. Controlled by the BCD( Binary coded Decimal ) value at the inputs, the output pin of the multiplexer (pin 1) is connected to any one of the 16 outputs.
The output pins are connected with 1k resistors. The IC2 can therefore be considered as a linear potentiometer with 16 steps.
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