The Future of Shopping; Tiny silicon identity chips being put in everyday objects and even implanted under the skin are changing the way we consume. Will they also invade our privacy?(radio frequency identification)(Cover Story)

Byline: Rana Foroohar, With Jonathan Adams in New York and Kay Itoi in Tokyo

Antoine Hazelaar has a chip on his shoulder--or rather just beneath the skin of his left arm. It's a piece of silicon the size of a grain of rice, and it emits wireless signals that are picked up by scanners nearby. Ever since the 34-year-old Web-site producer had the chip implanted in his arm, he's enjoyed VIP status at Barcelona's Baja Beach Club. Instead of queuing up behind velvet ropes, Hazelaar allows the bouncer to scan his arm, and strolls right in. If he wants a drink, the bartender waves an electronic wand that deducts from the 100 Euro tab on Hazelaar's chip.

Such sci-fi clubbing is made possible by Radio Frequency Identification, or RFID, technology--tiny digital chips that broadcast wireless signals. RFID tags are cheap and small enough to be disposable, and they're getting cheaper and smaller by the day. Retail stores are beginning to use them as glorified bar codes, putting them on cases of bananas or crates of Coke so they can keep track of their inventory. The technology has the potential to transform our relationship to the objects around us. In theory, stores could dispense with checkout counters--instead, you'd grab items off the rack or shelves and walk out the door, while an RFID reader takes note of the items and takes the money right out of your e-wallet. Your clothes could tell your washing machine what settings to use. "RFID could help give inanimate objects the power to sense, reason, communicate and even act," says Glover Ferguson, chief scientist for the consulting firm Accenture. The prospect is exciting, but it raises troubling questions about the invasion of privacy.

For now, businesses see it as a way to save money and improve service. Big groceries, department stores and other retailers around the world are asking suppliers to put RFID tags on shipments of goods. Staff will know exactly where items are and when they came in. Customers will never have to leave the store empty-handed because items will never run out--wireless signals will alert staffers to dwindling supplies of diapers or soup. What's more, RFID will help combat theft and counterfeiting, problems that cost businesses $500 billion a year.

For some retailers, RFID is a way to provide a more seamless shopping experience. British retail giant Marks &Spencer is currently tagging men's suits in several London stores as part of a test. When you buy a size 42, the stockroom--alerted by the tag--sends up another. Metro's Future Store in Rheinberg, Germany, is putting tags on individual items. Better not steal ...