What does Smart Chip mean?
A smart chip is an extremely small piece of hardware that includes a microprocessor for computing, or other resources for high-level data handling. The smart chip on a sophisticated modern card, such as a credit card or identification card, allows the card to function as a computing device or a drive-type data holder, which provides for various processes such as authentication and data storage.
Techopedia explains Smart Chip
Various kinds of smart chips deliver different kinds of functionality to a smart card. Some work much like a small flash drive or pen drive USB device in that they simply include memory to store data. A type of device that could be called a CPU card would include a working processor, as well as items like electrically erasable programmable read-only memory (EEPROM), which stores information for a processor card when it is removed from a source of energy. Smart chips may also handle password protection or other security devices for cards. Other competing types of cards involving smart chips are made for specific retail situations: these include chip-and-PIN cards, which use a PIN number for authentication, and chip-and-signature cards, which use a signature for authentication.
Typically, a smart chip is embedded in a number of layers or substrates that make up the physical card. Durable materials such as polyester or polycarbonate are often used together with layers of colorful visual materials and transparent laminate covering. As there are many different types of smart chips and smart cards being made, the design of these cards must match the design of reader systems for any given use.