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The tinyAVR microcontrollers feature Configurable Custom Logic (CCL) peripherals that allow users to implement custom digital logic directly on the chip, independent of the processor core. Using two Lookup Tables (LUTs) within the CCL, users can create simple to moderately complex logic gates like AND, OR, and XOR. The accompanying YouTube video by Grug Huhler demonstrates this functionality with code using the Logic.h library. This approach can reduce the bill of materials by implementing logic directly on the chip, as shown in examples like a three-input AND gate and SR latches.