Is an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags or transponders? An RFID tag is a small object that can be attached to or incorporated into a product, animal, or person. RFID tags contain silicon chips and antennas to enable them to receive and respond to radio-frequency queries from an RFID transceiver. Passive tags require no internal power source, whereas active tags require a power source.

RFID cards are also known as "proximity" or "proxy" cards and come in three general varieties: passive, semi-passive (also known as semi-active), or active.

Passive RFID tags have no internal power supply. The minute electrical current induced in the antenna by the incoming radio frequency signal provides just enough power for the CMOS integrated circuit (IC) in the tag to power up and transmit a response. Most passive tags signal by backscattering the carrier signal from the reader.

This means that the aerial (antenna) has to be designed to both collect power from the incoming signal and also to transmit the outbound backscatter signal. The response of a passive RFID tag is not just an ID number (GUID); the tag chip can contain nonvolatile EEPROM for storing data. Lack of an onboard power supply means that the device can be quite small: commercially available products exist that can be embedded under the skin. As of 2006, the smallest such devices measured 0.15 mm × 0.15 mm, and are thinner than a sheet of paper (7.5 micrometers).[4] The lowest cost EPC RFID tags which is the chosen standard by Wal-Mart, DOD, Target, Tesco in the UK and Metro AG in Germany are available today at a price of 5 Cent each.

The addition of the antenna creates a tag that varies from the size of postage stamp to the size of a post card. Passive tags have practical read distances ranging from about 10 cm (4 in.) (ISO 14443) up to a few meters (EPC and ISO 18000-6) depending on the chosen radio frequency and antenna design/size. Due to their simplicity in design they are also suitable for manufacture with a printing process for the antennas. Passive RFID tags do not require batteries, can be much smaller, and have an unlimited life span. Non-silicon tags made from polymer semiconductors are currently being developed by several companies globally. Simple laboratory printed polymer tags operating at 13.56 MHz were demonstrated in 2005 by both PolyIC (Germany) and Philips (The Netherlands). If successfully commercialized, polymer tags will be roll printable, like a magazine, and much less expensive than silicon-based tags.

Semi-passive RFID tags are very similar to passive tags except for the addition of a small battery. This battery allows the tag IC to be constantly powered, which removes the need for the aerial to be designed to collect power from the incoming signal. Aerials can therefore be optimized for the backscattering signal. Semi-passive RFID tags are thus faster in response, though less reliable and powerful than active tags.

Unlike passive RFID tags, active RFID tags have their own internal power source which is used to power any ICs that generate the outgoing signal. Active tags are typically much more reliable (e.g. fewer errors) than passive tags due to the ability for active tags to conduct a "session" with a reader. Active tags, due to their onboard power supply, also transmit at higher power levels than passive tags, allowing them to be more effective in "RF challenged" environments like water (including humans/cattle, which are mostly water), heavy metal (shipping containers, vehicles), or at longer distances. Many active tags have practical ranges of hundreds of meters, and a battery life of up to 10 years. Some active RFID tags include sensors such as temperature logging which have been used in concrete maturity monitoring or to monitor the temperature of perishable goods. Other sensors that have been married with active RFID include humidity, shock/vibration, light, radiation, temperature and atmospherics like ethylene. Active tags typically have much longer range (approximately 300 feet) and larger memories than passive tags, as well as the ability to store additional information sent by the transceiver. The United States Department of Defense has successfully used active tags to reduce logistics costs and improve supply chain visibility for more than 15 years. At present, the smallest active tags are about the size of a coin and sell for a few dollars.

An RFID system may consist of several components: tags, tag readers, edge servers, middleware, and application software.

The purpose of an RFID system is to enable data to be transmitted by a mobile device, called a tag, which is read by an RFID reader and processed according to the needs of a particular application. The data transmitted by the tag may provide identification or location information, or specifics about the product tagged, such as price, color, date of purchase, etc. The use of RFID in tracking and access applications first appeared during 1932 [used the system identification to identify friendly and un-friendly planes] . RFID quickly gained attention because of its ability to track moving objects. As the technology is refined, more pervasive and possibly invasive uses for RFID tags are in the works.

In a typical RFID system, individual objects are equipped with a small, inexpensive tag. The tag contains a transponder with a digital memory chip that is given a unique electronic product code. The interrogator, an antenna packaged with a transceiver and decoder, emits a signal activating the RFID tag so it can read and write data to it. When an RFID tag passes through the electromagnetic zone, it detects the reader's activation signal. The reader decodes the data encoded in the tag's integrated circuit (silicon chip) and the data is passed to the host computer. The application software on the host processes the data, often employing Physical Markup Language (PML).

Take the example of books in a library. Security gates can detect whether or not a book has been properly checked out of the library. When users return items, the security bit is re-set and the item record in the Integrated library system is automatically updated. In some RFID solutions a return receipt can be generated. At this point, materials can be roughly sorted into bins by the return equipment. Inventory wands provide a finer detail of sorting. This tool can be used to put books into shelf-ready order.

An advanced automatic identification technology such as the Auto-ID system based on the Radio Frequency Identification (RFID) technology has two values for inventory systems. First, the visibility provided by this technology allows an accurate knowledge on the inventory level by eliminating the discrepancy between inventory record and physical inventory. Second, the RFID technology can prevent or reduce the sources of errors. Benefits of using RFID include the reduction of labor costs, the simplification of business processes and the reduction of inventory inaccuracies.