As the scheme name suggests, 8b-10b means that 8 bits of data are transmitted as 10-bit symbols to achieve DC balance and bounded disparity. The low five bits of data are encoded into a 6-bit group (the 5b and 6b section) and the top three bits are encoded into a 4-bit group (the 3b and 4b section). These code groups are concatenated together to form the 10-bit symbol that is transmitted on the wire and received, then decoded in reverse. This algorithm is invented and patented by IBM Corporation.

To balance the DC signals during high-frequency data receiving, the two inserted control bits help to make the difference between the counts of 0 and 1 in a string of at least 20 bits, is no more than two, and there are not more than five 1s or 0s in a row. This scheme helps to balance the DC signals during high frequency data receiving and also reduce the demand for the lower bandwidth limit of the channel necessary to transfer the signal. However, using the 8b-10b encoding algorithm adds 25% overhead to each character. This character overhead is not the only over-head, however it is the most significant factor. The example for 8b-10b encoding is shown in Figure 1-1.

Figure 1-1 8b-10b encoding