Perhaps I am wrong but the sound of this acoustic guitar performance in this example seems to be like a nylon string? Am I wrong? Is he using some sort of effect to get that soft sound from those 3 steel strings?
It’s an electro-acoustic. There are controls on the guitar itself that allow you to greatly modify the tone produced, plus you can further manipulate the sound on whatever you’re plugging it into.
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That’s a steel strung electro acoustic with just a touch of reverb I think. The quality of the sound would mostly be dictated by the quality of the instrument and electronics used.
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That’s definitely a steel string, and as others noted he’s using the pickup/electronics in the guitar, which gives him a lot of flexibility in shaping the sound. (Some Martins come with pretty good electronics, too.)