R-2R DACs are based on the fact that each bit of the binary sample represents a certain amount of voltage. Since each successive bit represents half the voltage of the previous bit, they use a resistor ladder to divide the reference voltage in half for each next bit. They need to use high-precision resistors to ensure that the division is as close to perfect as possible, and this is the main reason discrete R-2R DACs are so expensive.

Meanwhile, delta-sigma DACs avoid the need for precision resistors by changing the format of the signal. Rather than convert the full 16- or 24-bit sample, delta-sigma DACs convert the original digital signal into a representation with significantly reduced bit depth. Because these representations carry much less information than 16 or 24 bits, these DACs have to make up for this loss by increasing the sampling rate. Along the way, information is being lost and this creates some quantization noise. The core of a delta-sigma DAC is the delta-sigma algorithm, which reduces the effect of the added quantization noise.

Because they do not need the precision resistor ladder, delta-sigma DACs can be made at a much lower cost than R-2R DACs. They also require less power, and are better suited for portable systems than R-2R designs. However, because of the necessary noise-shaping filters in delta-sigma modulation, the analog output is somewhat removed from the digital input, and some feel this affects the character of the sound. On the other hand, the output of an R-2R DAC is exactly what the digital samples specify.