Microchips are becoming so inexpensive to make that they'll soon be in almost everything we buy. Simon Usborne reports on a tiny revolution

Early versions were developed by Allied forces to identify Second World War fighter planes. Later, Soviet spies used them to build covert listening devices. Now, more than 60 years on, you might not even know that these tiny radio-transmitting microchips exist, but they feature in everything from cows to car keys.

And, as new advances make them microscopically small and as cheap as, well, chips, they are being used in even more ways - for example, as implants in tickets for the Beijing Olympics, which went on sale this month. Soon, they could be embedded in footballs, photos and even knee joints.

The idea behind the technology, called RFID (radio frequency identification) chips, is simple. An antenna is coupled with a silicon memory chip that can store information such as names, addresses or serial numbers, built into a plastic tag. When it comes within range of a reader, it draws enough power from the radio field to return the information stored on the chip. That can be checked against a database to track a consignment of tea, let you into your office, verify that duty has been paid on your pack of cigarettes, or ensure that money is taken off your Oyster card account.

Radio waves are hardly hi-tech. In the 1970s, the US Department of Defense used smart labels to track shipments of nuclear material. The civilian world soon caught up and tags began appearing in office access cards, clipped to cows' ears to help farmers track cattle, and on car windscreens for automatic road toll payment.

But the challenge today has been to develop tags small enough to embed in everyday objects, and cheap enough to be disposable. In 2003, the Japanese electronics firm Hitachi launched the Mu-chip, which did away with the bulky metal insulating rings required by older tags in favour of thin layers of silicon dioxide. At just 0.16mm square and 7.5 microns thick, the Mu-chip is small enough to get lost in a teaspoon of sugar. In February, Hitachi released pictures of a new prototype in which the chip is dwarfed by salt crystals.

This remarkable shrinking act is opening the door to a whole new world of chipping opportunities. Tiny tags embedded in paper tickets for the Beijing Olympics will make it almost impossible for counterfeiters to make good copies. The European Central Bank has expressed an interest in using the technology to chip banknotes. And, last month, the Government announced plans to tag cigarette packs to allow customs officials to determine whether duty has been paid.

But it's in retail that the technology takes off. In 2003, Wal-Mart became the first supermarket chain to use tags to track pallets and crates through the supply chain. In some stores, RFID stickers are turning up on high-value, easily pocketed items such as CDs, DVDs and packs of razor blades.

This summer, Marks & Spencer will start tagging suits at 120 UK stores. The labels will do the same job as a bar code at the checkout, but will also improve distribution; "smart" shelves will know when stocks are running low.

A future where every box of eggs and pint of milk comes with a microchip is being predicted. "It will happen," says Raghu Das, the chief executive of IDTechEx, an independent RFID consultancy firm in Cambridge. "But we think that day is decades away because it's harder to justify the cost of tagging low-cost items. It's just too expensive to start putting silicon chips on every piece of throwaway packaging."

The price of tags for consumer goods is falling fast, but at 13p apiece, they are still too expensive to use on individual cucumbers and tomatoes. Fast-forward 10 years, and IDTechEx estimates that each chip will cost a quarter of a penny. In 2017, global demand will be an estimated 670 billion tags, compared with a 1.7 billion this year.

But RFID technology will have moved on by then, Das says. "The most exciting development is printed electronics. Bar codes are great because they are virtually free - you only pay the cost of the ink. We see RFID going the same way; one day you will print a tag on the side of a product."

One reason why retail chips can be cheap is their tiny memories. Marks & Spencer's suit tags only store 64 bits of data - just enough for a serial number - but technicians at Hewlett-Packard's Bristol lab have developed a tag, called a Memory Spot, which can store 60,000 times as much data in a chip the size of pencil tip. The chip, which has half a megabyte of memory, works at a higher frequency, so it can be read at a blistering 10 megabits per second - 10 times faster than a mobile-phone Bluetooth link. But, instead of beaming the data over several metres, like many RFID tags, the Memory Spot can only be read from a distance of 1.5mm.

Even so, Ed McDonnell, Memory Spot project manager at HP Labs, says the chip will take RFID technology to a new level. He says: "It will allow us to give a kind of electronic personality to any object." HP envisages a future where photo printers can load an audio file, video clip or digital version of the print on to blank chips embedded in photo paper.

"Say you're at a party and you want to capture the atmosphere in a photo. You could put a sound clip on to a memory spot and play it back with a reader to really enhance the memories of the occasion," McDonnell says. HP hopes to persuade mobile phone- and PDA-makers to enable their products to read the Memory Spot.

With the potential for tags to find their way into so many of our belongings, the rise of RFID has alarmed privacy groups, who say that smart labels are yet another face of Big Brother. They fear that RFID "spychips" could trample consumer privacy by allowing retailers to gather unprecedented amounts of information about activity in their stores and link it to databases.

More worrying is the possibility that governments, organisations or would-be thieves could monitor people's belongings via chips the individual might not even be aware of. As one American politician put it at a 2003 Senate hearing on the matter: "How would you like it if your underwear was reporting on your whereabouts?"

But Das cautions against scaremongering. He says: "RFID seems like a scary tool but we can already be tracked via our mobile phones. We put up with it because it's useful and I think the same will be true for tagging. RFID has benefits that nobody seems to be demonstrating.

"For example, a hospital in Chicago puts tags on pill bottles and gives elderly or partially sighted patients a talking reader. They hold it up to the bottle and it tells them when to take them, or if it's the wrong time of day. That's an incredible service, and it's just one example of how the technology could revolutionise our lives."

Chips with everything...

SMART FRIDGES

Unsure if you need milk? Text your fridge to find out what's left and when it expires. Need dinner ideas? Your fridge will e-mail you recipes based on what you have. If anything runs low, it will add it to your shopping list. A new Samsung prototype, with an RFID reader, will scan things in and out automatically.

SMART HOSPITALS

Some US patients already carry their medical records in chipped bracelets. Kodak has made an ingestible RFID tag that stops working when exposed to gastric acid, giving details about the digestive system. Chips in hip or knee replacements couldwarn when a new one is needed. Chips on pills could let nurses ensure they are swallowed.

SMART ARMS

VIP guests at a bar in Barcelona don't need to have their names on the list or ID to get in, or indeed cards or cash. The Baja Beach Club offers an RFID tag, which is implanted in the arm. The chip, developed by VeriChip Corporation, links to an online guest list and bar tab. It is also used in hospitals and as a security pass.

SMART BALLS

Football authorities have long considered electronic systems to determine whether the ball crosses the goal line. Adidas has developed a chipped ball that causes the referee's watch to beep if it passes readers in the goalposts. Similar chips in shin pads could perfect offside decisions. The Fifa president, Sepp Blatter, has said he expects a system to be up and running in time for this December's World Club Championship.

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