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AirTag again exposes lies told by airlines about lost luggage
(appleinsider.com)
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They're Bluetooth beacons. Basically they transmit a very low power signal that any nearby iPhone (I think Android phones do it too now, but I'm not certain) can pick up. When a phone receives the signal it sends the information about the tag and the phone's current location to the central server. You can then track the tag from there.