Ray tracing is a rendering technique for more life-like lighting effects in a 3D scene. As the name suggests, each ray of light has its path traced from the camera to objects on screen and then to light sources. Traditionally, games use rasterization for calculating the lighting effects, where the image being displayed on screen is flattened into a 2D plane and the brightness of each pixel is calculated according to the amount of light hitting it. With ray tracing, there is a lot more involved such as reflections, refractions, chromatic aberrations, light scattering and more.
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