What is Tokenization?
Tokenization is the process of replacing sensitive data with unique identification tokens that retain all essential information about the data without compromising its security. Tokenization, which seeks to minimize the amount of data a company needs to keep on hand, has become a popular way for small and medium-sized businesses to bolster the security of credit card and e-commerce transactions, while they minimize the cost and complexity of complying with industry standards and government regulations.
Tokenization is often used to protect credit card data, bank account information, and other sensitive data handled by a payment processor.
Tokenization has been around since the beginning of the first monetary systems, in which coin tokens have long been used as a replacement for real coins and bills. Subway chips and casino chips are examples of this as they serve as substitutes for real money. This is physical tokenization, but the Blockchain development company concept is the same as digital tokenization: to act as a substitute for a more valuable asset.
How Tokenization Works?
Tokenization replaces sensitive information with equivalent non-sensitive information. Non-sensitive replacement information is called a token.
Tokens can be created in several ways:
Using a mathematically reversible cryptographic function with a key.
As a result, the token becomes the exposed information, and the sensitive information that the token represents is securely stored in a centralized server known as a token vault. The token vault is the only place where original information can be mapped to its corresponding token.
Some tokenization's do not have a vault. Instead of storing sensitive information in a secure database, vaultless tokens are stored using an algorithm. If the token is reversible, the original sensitive information is generally not stored in a vault.
Here is a real world example of how tokenization works with a token vault.
A customer provides their payment details at a point-of-sale ( POS ) system or online payment form.
The details, or data, are replaced by a randomly generated token, which in most cases is generated by the merchant's payment gateway.
The original sensitive payment information is stored in a token vault at the merchant's payment gateway. This is the only place where a token can be assigned to the information it represents.
The payment processor re-encrypts the tokenized information before submitting it for final verification.
