How to record soundcard audio and output to speakers with the BlackHole driver?

Solution 1:

The steps below are for BackgroundMusic, another open-source driver which works pretty much the same as Blackhole. The same steps have also been verified to work with BlackHole.

1. In the Audio MIDI Setup.app create a Multi-Output Device and select the checkboxes for Built-in Output and Background Music.
2. Option+Click on the top-right speaker icon in the Mac menu bar and under Input Device select Background Music.
3. Under Output Device select Multi-Output Device as shown below.

You'll notice that after setting Output Device: Multi-Output Device the volume slider and the volume control keys won't work anymore. BackgroundMusic adds a menu icon in the top bar which you can click and use the volume slider in the dropdown that appears.

^{Both BlackHole and BackgroundMusic seem to cause occasional crashes of the Audio MIDI Setup app, and are not yet 100% stable and reliable (at least not on the MacOS version I tried), but they do work. I would classify both drivers as 'not-100%-stable' at the time of writing.}