Last week, Hitachi (NYSE:HIT) unveiled the world's smallest radio frequency identification (RFID) tag. Measuring only .05 x .05 millimeters, and about the thickness of a piece of paper, the device is 64 times smaller than the previous smallest chip, which was already ridiculously small. (To fully appreciate the size of this new chip, I encourage you to check out a picture.)

Although the chip, referred to as a "powder type" RFID, isn't expected to be on the market for two or three years, I believe it offers further evidence that although RFID technology hasn't taken off as fast as many of its advocates predicted, its time is fast approaching.

Wal-Mart (NYSE:WMT) has already installed the RFID technology in five of its distribution centers and more than 1,000 stores. It expects to add another 400 stores this year.

The giant retailer has not yet realized any great savings from RFID, but that's because the current generation of RFID tags still cost around $0.15 each. As new tags such as Hitachi's enter the market, I expect this equation to change, bringing RFID one step closer to competing with barcode technology in terms of price.

I'm not sure exactly when RFID technology will cross the magical price threshold to become cheaper than barcode technology, but given the continued miniaturization of the technology, two to three years from now seems like a reasonable guess.

Does this mean that now's the time to consider an investment in RFID technology? I think so, but the industry is not without risk. While the merits of the technology for business are unquestionable, the public may have greater concerns about these super-tiny tags. The specter of RFID-based surveillance, which these new tags would make even easier, will rightly worry many people. I wouldn't be surprised if privacy advocates were already devising ways to thwart this technology.

Will they succeed? I don't know, but if you are considering an investment in an RFID company like Zebra Technologies (NASDAQ:ZBRA), or intrigued by soon-to-go-public VeriChip, privacy fears are something to keep in mind.

Interested in other RFID-related foolishness? Read fellow Fool Tim Beyers' thoughts on RFID technology.

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Fool contributor Jack Uldrich doesn't mind people powdering their noses, but he draws the line at companies wishing to powder his food products with tags. He does not own stock in any of the companies mentioned in this article. The Fool has a strict disclosure policy.