Tokenization Explained: What is Tokenization and How Does it Work?

what is tokenization

Introduction

47% of Americans were victims of financial identity theft in 2020.

Online data can be as valuable as cash in our modern age. With access to certain types of secured data, you can gather information on all aspects of a person’s identity. This could include their social security information, bank details, and health records.

With more and more of our data moving into a digital state, online platforms must find better and more secure ways to keep our data safe. This is why understanding Tokenization is so essential.

If you are trying to answer the question ‘What is Tokenization?’, keep reading. Our short Tokenization guide will explain this complex digital term and help you understand why tokenization is so essential for data security online.

What is Tokenization?

Tokenization is a means of breaking up complex data strings into smaller usable chunks of information called tokens. These tokens can still refer to the original sensitive data but are not sensitive themselves. This means that any business, be it a bank or a liquid assets trading platform, can store sensitive data onsite in tokens and not put itself at risk of a data breach.

Tokens have no value, and unlike encrypted data, they can not be unscrambled back into the original data form. However, the internal databases and banking systems can still understand and read them to access the information they need. The sensitive data is stored securely offsite and far from the business’s systems.

It is much like when you go to a casino to play poker. It would be far too risky to place all of your physical money on the table as anyone could steal it. Therefore, you change your cash for chips or tokens.

These tokens have no value, so if they are stolen, nothing is lost. However, they represent items of value, and you can exchange them back into your cash at any time. They keep your money safe until you need to access it.

How Does Tokenization Work?

Usually, you will employ the services of a tokenization platform that can provide both the token service and secure data storage from the original data. With the correct keys installed at your business, you can use the tokens supplied by the tokenization platform to access your data without hindrance. This means that you can continue using the sensitive data without ever having it stored on your site.

The tokenization platform will also offer a detokenization process which will allow you access to the original data by exchanging the token. Once complete, the token is no more, and the original data is free to access.

Conclusion

Hopefully, this short guide has given you an answer to the question what is tokenization? In short, it is a means of keeping data safer than it has been beforehand the removal of sensitive data from your business systems. Tokenization may well replace encryption in the future as the primary means of keeping our data safer from hackers.

If you found this guide informative, please take a moment to read some more blogs on our site.

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