How do chips make credit cards more secure?

If you're in the US, you've probably heard the rumblings about new credit cards with microchips—and the slow, fast machines we have to use with them.

And if you're in Europe or Canada, you've been using chip cards for almost a decade, and you're wondering what the fuss is all about.

But now it's time we made the switch because the old cards were actually easier for criminals to fake. And now, it's next to impossible. At least... offline.

The purpose of a debit or credit card is simple: you are promising someone that they will be paid what you owe them. And some of the card information, such as the card number, is a way of telling who you are and where to get the money.

Now, you don't want someone to steal your card number, walk into the local Costco, and buy thousands of dollars worth of teriyaki flavoured beef jerky with it, do you?

So, for the sake of security, cards also have methods to verify that they are indeed cards associated with that number. Older cards use numbers hidden in a static magnetic pattern on the back to prove their identity.

But it was all too easy for criminals to steal that pattern when you swipe your card to buy something, copy it to another card, and pretend to be you.

Hence chip cards, also known as EMV cards, because of the companies that make them have a different way of using numbers to prove their identity.

They use encryption. Their microchips are tiny circuits that start working when they are placed in terminals, such as the machines at the grocery store.

In the terminal, the chip generates a number called a cryptogram by combining the information from the terminal with its own data.

Up to the terminal - and to anyone trying to steal your card details - the numbers look completely random. And since it's partly based on information received from the terminal, the number is different each time you use your card.

That's why criminals can't just copy and use numbers, like magnetic stripe patterns. Depending on the setup at the store, that number may be sent to your bank so they can tell the terminal if your chip actually made it.

Or, sometimes, the terminal itself can verify this. Now, in a short YouTube video, we can't go into all the math and cryptography of how your bank gets information from this seemingly-random number when no one else can.

If you're curious, the last few links in the description might get you started. The super-condensed version is that these numbers are easy to generate or verify if you have exactly the right information.

And if you're a criminal who loves beef jerky you don't like it it's essentially impossible to fake. Your chip has what it needs to generate numbers.

And the bank or terminal has different information that they need to undo what the chip did and make sure the data matches the chip and the card.

One-stop chips don't help with online purchases, as you type only static information on the card, such as your name and number. But they are personally designed to prevent fraud, which is actually good for them.

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