RFID works as follows: A tiny computer chip with an integrated antenna—the transponder—is embedded in a merchandise label or plastic card. This chip stores a series of numbers, which, like a barcode, holds encrypted data about the product and its manufacturer. The chip also stores its own serial number, which means any object carrying such a transponder can always be identified unambiguously.

Special RFID readers register the stored numerical code even without physically touching or being in view of the chip, as transmission is carried out via radio. The reader sends out an electromagnetic field that activates the transponder. The code is then read and stored in a data processing system. When used in a supermarket, for example, the technology makes it possible to automatically conduct inventories with just the push of a button.