Most commonly, the technique used currently is to encode the data as a series of pressure pulses in the drilling fluid using poppet valves that will restrict the fluid flow to represent a one and release to represent a zero. This is known as positive mud pulse telemetry.
There are other systems which will open a small hole to the annulus to allow the pressure to drop for a 1 and recover for a zero. This is known as negative mud pulse telemetry. A third method is to generate a sinusoidal continuous pressure cycle onto which a phase modulation can be super-imposed to create a decipherable message signal. This is known as continuous wave telemetry.
The data is interpreted at surface and displayed in a surface display unit. Direction is measured from Magnetic North initially but usually corrected to either grid or true. Inclination is measured up from vertical and toolface, as mentioned, can be measured either as an Azimuth Toolface or a High Side toolface. In the picture below, the drilling tool is currently oriented on a gravity of toolface of 136 degree right of high side.
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