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It would be the same way air tags do, they use the find my network, and any phone that connects with that will know if there's a device nearby. it's apples solution to stop people using air tags to hide on people or their personal property to find out where they live, where their stuff is stored etc.
I don't know whether non apple air tags still notify other people on the network or not. If they don't i might get one!
MCamb-
All the FindMy trackers (whether they're actual airtags or other FindMy compatible devices like the Knog) do is broadcast their ID by bluetooth to all the phones in the vicinity.
The phone then does all the useful stuff like sending the location to Apple. So the notification that you're travelling with an unknown device is handled on the receiving phone (in this case the phone of the scumbag who's nicked your bike). It's a feature of the network rather than the tracking device so there's no way Knog or anyone else can opt out of it.
If they're unfamiliar with what the knog looks like it might take them a little while to figure out what they need to ditch to stop the tracking but I think there's now an option in the alert to disable an unknown tracker that's travelling with you so they might not even need to remove it from the bike
I think it's probably useful as an immediate "your bike is being nicked and it's currently being ridden round the corner" alert but it's not going to let you track it for days or even hours after the theft.
VoltairePerkins
It uses the find my network, but I'd be surprised if it notifies people. That would seem like a bad idea.
To be honest I'm not quite sure how it could notify people. The tracker is connected to my phone, not the phone of whoever stole the bike.