What is Tokenization?

07 Aug

Data security is a complicated and rapidly changing field. There are many different technologies and systems that come into play in any security system, and different companies, providers, and technologies can rise and fall like the tides. In an effort to show our users how simple and straightforward our system is, we thought we would take this opportunity to discuss what tokenization actually is and how it can help your business.

The heart of tokenization is the token. A token is, very simply, a piece of data that stands in for another, more valuable piece of information. Tokens have virtually no value on their own – they are only useful because they represent something bigger. A good analogy is a poker chip: instead of filling a table with wads of cash (which can be easily lost or stolen), players use chips as placeholders. The chips can’t be used as money; they must be exchanged for it after the game.

Tokenization works by removing the valuable data from your environment and replacing it with these tokens. Most businesses hold at least some sensitive data within their systems, whether it be credit card data, medical information, Social Security numbers, or anything else that requires security and protection. Using tokenization, this data is taken out of your environment entirely, and then it is replaced with tokens that are unique to each piece of information.

Why would you want to do this? After all, wouldn’t it be much simpler to just secure the information yourself? For most businesses, there are two major reasons why tokenization is a better security option than self-reliance: data breaches, and compliance.

The first reason, data breaches, should be obvious. If a thief breaks into your network and steals customer data, that data can then be used by the thief in whatever way they wish. Even if your sensitive info is encrypted, it’s not totally secure. If the thief breaks your encryption, you’re in the same position as if it was stored out in the open.

But if a data thief steals tokenized data, they really haven’t gotten anything but a bunch of useless tokens. Tokens can’t be reverse-engineered into real data, just like poker chips can’t be turned into real money. If someone steals them, all they’ve stolen is plastic. That means your data is still safe, and you don’t have to alert your customers or pay any fines.

data security

And that brings us to our second point – compliance obligations. Storing credit card data requires specific security measures as mandated by PCI standards. If your business doesn’t meet the obligations you can face hefty fines and fees, and if your data is breached it can cost you hundreds of dollars per credit card number lost. Simply meeting the standards is costly, as it requires lengthy audits and expensive security systems.

But with tokenization, you reduce your compliance obligations to the bare minimum. Tokenized data isn’t treated as sensitive information by the PCI standards, meaning that storing it doesn’t carry any compliance obligation. In short, you save a lot of money by implementing tokenization in your environment.

To be fair, there is quite a bit more to tokenization than that. But at the heart of it all, you’re really just replacing your sensitive data with information that is perfectly secure, like changing cash for chips – except, of course, that when you use tokenization, you aren’t gambling on security.

TokenEx is a leading provider of tokenization services to businesses of all kinds. We provide simple and secure data security solutions, and secure all of your information in Level 1 PCI-secure servers. To learn more about us, contact our representatives today.