As security concerns and regulatory needs have increased, tokenization has become valuable. Tokenization allowed users' sensitive data to be transformed into non-sensitive data, making it more secure.

What Is Tokenization?

Tokenization is the expression and protection of sensitive data with a unique and random value. With tokenization, data is divided into small units. Data can be tokenized by word or character encryption. Tokenization is considered a method of data privacy protection.

Tokens do not change specific elements of the original data in format. Tokenizing data is close to impossible to undo because it is created in a similar way to a hash. Tokens cannot be returned to the original data without the stored data. Information such as bank account numbers, ID numbers and email addresses generate tokens when they are sent or stored in a system. This makes the data inaccessible and ensures security between systems.

How Was Tokenization Created?

Tokenization has been used as a data protection mechanism for financial services since the 1970s. Later, tokenization was created by TrustCommerce in 2001 to help protect users' credit card information. By storing customers' card information on their own servers, traders were able to access customer information from anyone who accessed the servers.

TrustCommerce developed a system that replaces account numbers with a random number, called a token. The system allows traders to store data when receiving payments. By converting tokens into primary account numbers, TrustCommerce was able to process payments with the original account numbers.

How Does Tokenization Work?

Token is non-sensitive exchange data. Tokenization is the conversion of sensitive data into equally non-sensitive data.

The token can be created in three different ways:

• It can be created in a revocable form through algorithmic encryption.
• It can be created in a near-impossible irrevocable way, similar to hashing.
• It can be generated using random numbers.

As a result, the token becomes data and the sensitive information that the token replaces is securely stored on a central server. For instance, a payment data is replaced by a token generated from random numbers. The tokenized data is encrypted and sent to the payment processor. The original sensitive payment data represented by the tokenization is stored on the merchant's central server.

What Is the Purpose of Tokenization?

Tokenization aims to protect the benefits of trading and sensitive data. It is exchanged in ways that do not allow sensitive data to be continuously used for their intended purpose. They cannot be converted because there is no mathematical relationship between the token and the original data. Tokenization platforms aim to remove personal data, convert the data into an untranslatable token and store the original data in a secure environment, separate from servers.

Tokenization platforms aim to protect sensitive data while preventing attackers from intercepting it. Tokenization refers to a data-centric approach to security. With tokenization, sensitive data is cryptographically encrypted. Cloud tokenization aims to prevent the risk of data theft.

What Are the Benefits of Tokenization?

The benefits of tokenization are as follows:

• Tokenization gives financial assets other than crypto assets the ability to be decentralized and allows financial transactions to take place more securely.
• Tokenization offers an additional layer of security for online commerce websites and increases consumer trust.
• With tokenization, companies or institutions do not need to transmit data through information systems and keep sensitive information in an internal database. This shows that tokenization protects companies or institutions from security breaches.
• Tokenization makes credit card payments more secure.

What Does Tokenization Mean in Blockchain?

Blockchain is a decentralized ecosystem. The ecosystem uses tokenization because there is no need for a third party to validate transactions on the blockchain network. Thanks to tokenization, blockchain is able to carry out transactions quickly and transparently without intermediary costs or authority rules.

Tokenization is realized by integrating different financial assets in a blockchain ecosystem. Tokenization allows data to be transformed to protect ownership rights. Through tokenization, crypto asset transactions are decentralized. Through blockchain and tokenization, every asset can be tokenized. Each cryptocurrency has a network to which it is connected, and each network has a token.

What Are the Differences of Tokenization and Encryption?

Tokenization and encryption are two different encryption tools used for data security. Tokenization changes the length or type of data being protected, while encryption changes both the length and type.

Tokenization uses information that cannot be decrypted to protect sensitive data. It also integrates and replaces data with random data instead of using algorithms. Therefore, the data cannot be decrypted. Encryption uses a secret key to protect the data and the data can be decrypted with the key. Encryption uses an algorithm to protect the data.

What Is Real Estate Tokenization?

Real estate tokenization is the process of dividing the asset into digital assets that represent the underlying property with all its rights. Real estate tokenization is carried out with the help of smart contracts. Anyone who owns a cryptocurrency is considered to own a part of the real estate and is entitled to profit and loss on the asset.

Tokenization fragments assets, breaking down the value of the asset into smaller values. For instance, let's say a user wants to sell a high-value property. Even if investors do not have enough assets to cover this value, they can invest for a certain period of time in the cryptocurrency that has been broken down into smaller values through tokenization.

What Is Tokenization Used For?

Tokenization is used to make many types of sensitive data more reliable:

• Credit card data or bank account numbers
• Identity numbers
• Phone numbers
• Passport numbers
• Driving license numbers
• Email address
• Personal information (name, address, date of birth)

What Are the Examples of Tokenization?

Tokenization can be used to protect information containing all kinds of sensitive data, such as bank transactions, medical records, driver's license information, loan applications and stock trades.

For instance, these use cases exist to protect credit card data, bank account numbers and sensitive data processed by payment processors:

• Mobile wallets
• E-commerce sites
• Business holding customer card information

As an example of payment tokenization, when a trader wants to process a credit card, the PAN is exchanged for a token. 1596-3211-9845-7852 is exchanged for 4b8%rm24kiEa. This expression makes sense to the person who can read the token; to someone else it looks meaningless.