Like their predecessors, modern computers share the ability to extend their abilities through the use of peripherals (loosely defined as an auxiliary device that works in conjunction with a computer). In days past, serial and parallel cables connected common peripherals, like printers and scanners, to the computer. Today, modern computers achieve connectivity with modern peripherals (printers, scanners, portable storage devices, digital audio players, gaming controllers, etc) using newer technologies: namely USB and Firewire.
USB and Firewire have been around for a number of years. Microsoft first began supporting the two technologies in Windows 98, and have included support for both in all subsequent versions of Windows, including Windows XP. Apple has also supported both technologies for some time.
Although many argue that one technology is better than the other, the fact is that it largely depends on the type of peripheral in question. Both technologies (in their most modern form - USB 2.0 and Firewire 400) provide excellent throughput (fast transfer speeds) and worthy hot-plug capabilities (adding or removing peripherals while the computer is still powered on).
Firewire was actually designed to replace SCSI, another means of connecting hard drives and other peripherals to the computer. Like SCSI, Firewire supports daisy-chaining devices to form long chains of devices. However, unlike traditional SCSI standards, Firewire is hot-pluggable and fully supports plug-and-play (the computer automatically configures the device when the device is plugged in). It is also possible to network computers together (ad-hoc) in small configurations.
Interestingly, because Apple played a large role in the development of the the Firewire technology and owns the rights to the term "Firewire." Because Apple began charging royalty fees for use of the term, many Firewire-capable manufacturers now omit the word and refer to it as "IEEE 1394" (the technical name for the Firewire specification).
Newer Firewire specifications have become available (IEEE 1394a and IEEE 1394b), which support even faster transfer speeds, but sadly, they have not been largely adopted or supported in the computer industry.
In contrast, USB started out as a very low-speed technology that was designed for low-throughput devices like pointing devices (mice, trackballs, etc), keyboards and such. However, with the advent of USB version 2.0, the technology gained dramatic increases in transfer speed. Since then, USB 2.0 has been used in many high-throughput devices, from to scanners and printers to external CD/DVD burners.
One really nice thing about USB is that both ends of a USB cable are not the same. One is often referred to as USB-A and the other USB-B. The cable, thankfully, will only go on one way, which prevents improper usage.
As both technologies are now used in many of the same devices, many have questioned which technology is more superior. Specifications indicate USB version 1.1 has a maximum transfer rate of 11 mbps (megabits per second), USB version 2.0 has a maximum transfer rate of 480 mbps and Firewire (IEEE 1394) has a maximum transfer rate of 400 mbps.
However, such numbers aren't necessarily representative of actual performance. Many independent studies have concluded that Firewire is largely more robust and reliable than USB 2.0, and can sustain high speed data transfers far better than USB 2.0 can. However, due to the expensive cost of manufacturing and a web of inhibitive patents, Firewire tends to be far less supported by computers than USB. Many experts have recommended Firewire for extremely high-throughput devices (like external hard drives & CD/DVD burners, digital video cameras, commercial quality scanners & printers, digital audio recording equipment, etc) and USB for other peripherals (digital cameras, flash-based removable storage drives, home/small-office printers, mice, keyboards, etc).
One interesting thing to note is that many peripherals (especially the larger ones) support both USB 2.0 and Firewire, which provides great flexibility to the user. If you can, buy products that support both.
Both technologies are backwards compatible with earlier versions. For example, USB 2.0 devices can be plugged into computers that support USB 1.1. Controversially, USB 1.1 devices can be plugged into computers that support USB 2.0. Be aware, however, that when mixing versions, transfer rates are negotiated on a lowest-common-denominator basis. In other words, if you plug a USB 1.1 device into a USB 2.0 capable computer, the device will communicate at USB 1.1 speeds, or throughput (11 mbps). In contrast, if you plug a USB 2.0 device into a USB 1.1 computer, the device will communicate at USB 1.1 speeds (again, 11 mbps). The same holds true when mixing Firewire (IEEE 1394) devices of different speeds.
Computers that lack USB 2.0 or Firewire support can be easily upgraded to support either technology. Such an upgrade requires opening the computer and adding a USB 2.0 or Firewire "PCI" or "PCI Express" card, which plugs into a cream-colored slot on the mainboard, or motherboard. Due to increases in mainboard speeds (often referred to as Front Side Bus (FSB) speeds), such addon cards may not provide the same performance as a newer computer with pre-existing USB 2.0/Firewire support. Note also that adding a PCI card requires careful attention to the computer, such as ensuring proper handling to ensure other components are not damaged or destroyed. If you are not familiar with adding or removing computer hardware, it might be wise to hire a PC technician to add the card for you.
No matter which technology you use, the more you know about it, the easier it will be to work with the device.
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