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1. What are the advantages and disadvantages of this technology? Do the advantages outweigh the disadvantages?
Why would the FDA bother to dignify what amounts to high-priced body-piercing? Millions implant various trinkets in their body-parts, and the FDA ... doesn't even want to hear about it...

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From the original link-reference:
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"Delray Beach, Fla.-based Applied Digital Solutions said it would give away $650 scanners to roughly 200 trauma centers around the nation to help speed its entry into the health care market."
ADS is actively subsidizing the use of the chip-technology. The industry of which they are a part has lobbied the FDA to give the chip the formal green-light, and a nice piece of free publicity.
The advantages lie mainly in the perception of a vertical venture-capital operation.
Why is this happening? It's part of the broader "RFID", Radio-Frequency IDentification technolgy. This is a major, government-sponsored, industry-embraced tracking/inventory system, which said players would like to see firmly integrated into society. This 'medical-ID' chip is just a spin-off, PR device ... oh, and there's lots of money in health care.
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2. Is this a good use of technology or a danger to privacy?
It's a nifty, possibly even fascinating use of technology ... especially for those of us who are susceptible to this sort of thing. It potentially has some pretty surprising legs under it, beyond what George Orwell would be quick to point out.
RFID Privacy Happenings - MIT Media LabDanger? Any time the FDA is doing something for the public, without ever bothering to check with the public, we should have one hand our wallet and the other on our lawyer's business card.
But us techie-types already determined that RFID is a poor candidate for nefarious purposes. First, the chip does not broadcast, but must be accessed using an installed scanner. The chip has to be within inches of a scanner, for it's existence to be known. Second, the chip itself holds only a smidgeon of information. In the case of this medical ID chip, all it does is trigger access to the person's medical file - it does not hold medical information itself.
My assessment: this is a highly specialized system that is directly useful only for people who must maintain an extremely well-integrated relationship with their medical providers. Beyond that, it is in reality mainly a soft-core start-up scam, playing off government interest in RFID, and hoping to plug into easy health-care money.