Why are chips on credit cards used?

They increase the security of transactions, making it impossible to forge or clone a credit card (as you can with the magnetic stripes).

They use an encryption mechanism and a unique key code assigned only to that card and which cannot be changed to generate a transaction code. This transaction code can only be correctly encrypted by the chip on that one card and contains information unique to that specific transaction. The bank can verify the validity of this transaction code, confirming the use of a valid (not forged or cloned) card at the point of sale.