What is Tokenization?

Tokenization is a data security technique that replaces sensitive information with non-sensitive substitutes, known as tokens. These tokens are useless to cybercriminals as they do not hold any intrinsic meaning or value. Organizations store the original sensitive data in a secure, centralized location, known as a token vault, separate from the systems that contain the tokens.

How Tokenization Works

The tokenization process typically involves four key steps. They are:

1. Data Collection: Security teams collect sensitive data from a user or system.
2. Token Generation: Security teams send the sensitive data to a secure tokenization server, which generates a random token – often a meaningless string of alphanumeric characters – to replace the original data.
3. Data Storage: Security teams store the original sensitive data in a token vault or database protected by strong security measures, such as encryptionWhat is Encryption?Encryption converts readable data (plaintext) into a scrambled and unreadable format (ciphertext) using an algorithm and a key. The primary purpose of encryption is to ensure the confidentiality… and access controls.
4. Token Use: The generated token returns to the user or system in place of the original data for transactions, processing, or storage. If required, the tokenization server can retrieve the original data by mapping the token back to its counterpart.

Types of Tokenization

There are two primary types of tokenization:

• Deterministic Tokenization: For scenarios where token consistency is necessary, deterministic tokenization means that the same input will always generate the same token. It is unsuitable for more sensitive environments, as attackers could resolve information from tokenization patterns.
• Non-Deterministic Tokenization: Typically used in susceptible environments, non-deterministic tokenization generates different tokens for the same input each time, enhancing security by making it more difficult to deduce the original data.

Tokenization vs. Encryption

While tokenization and encryption are similar, it’s important not to confuse them.

• Encryption converts readable data (plaintext) into a scrambled and unreadable format (ciphertext) using an algorithm and a key. It is commonly used to safeguard data that needs to be stored securely or transmitted over potentially unsecured networks.
• Tokenization replaces sensitive data with tokens stored separately from the original data. It is commonly used for payment processing and other situations where data needs to be referenced or used without revealing the original information.

The Future of Tokenization

While not a new concept, tokenization has only seen a real pickup in recent years and is likely to grow in popularity in the years to come. It’s already popular in finance and retail but will likely expand into other sectors like healthcare, telecommunications, and government. Increasingly stringent regulatory requirements will likely drive this increase in popularity, with more industries turning to tokenization to safeguard sensitive information and reduce compliance burdens.

Tokenization will also likely play a significant role in securing transactions and digital assets as blockchain, and Decentralized Finance (DeFi) grow increasingly popular. This is because tokenization can convert real-world assets, such as real estate, stocks, and commodities, into digital tokens that can be securely traded on blockchain platforms.

We’re also likely to see more comprehensive frameworks and standards for tokenization in the coming years, providing more precise guidelines for its implementation and use, resulting in more consistent practices across industries, and improving the overall security of tokenized data.

For more cybersecurity terms and definitions, visit our glossary pages here.