System noise has to be suppressed in any case, even if the signal looks like a square wave, it still can have some ringing.
If the metal ring is in fact attached to the sensor, then my guess is that the signal level is just reversed e.g. it is "high active". In this scenario one wire would have a static supply as soon as the ignition is on the other (signal) wire would go from low to a little below of the supply voltage when active. The ground would be just what it is a reference.
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I am interested about your theory on a two wire system using the same wire for supply and signal - can anyone chime in on how in the heck I wire that sort of setup?
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The supply would come from the ECM. The ECM would set the signal to high. At this point it is in a known state. If the sensor at the cam is pulling the signal down the ECM will recognize the new state.
All level detection circuits would be inside the ECM.
Due to the very low output of the Hall device, in any case an amplification is required, most probably inside the sensor housing or close to the Hall device.
After the sensor goes back to its non triggered state the ECM (still trying to supply the voltage) would go back into a high state. This would go on and on like that. Only two wires would be required.
Granted, this would require a very careful design.