Nowadays, many people hear about the term tokenization. It confuses them as they do not understand what it is and how it works. Tokenization is securing sensitive data by replacing it with unrelated non-sensitive placeholders called "tokens." Tokens are of the same length and format as the secure data. The tokens are then sent to a firm's internal systems for use. The original secure data is stored in a secure token vault. The tokens can retain some elements of the original secure data. This helps them maintain their utility. In this article, we will learn about tokenization and its various benefits.

What is a Token?

Tokens have nearly no value when seen as a standalone entity. They are only helpful because they stand for something more important. A token is a piece of data that stands in for another part of the data. A great example is a poker chip. Players use chips as placeholders. This is preferable to filling a table with wads of cash (which can be easily lost or stolen). The chips can't be used as money; they must be exchanged after the game. Most firms hold at least some sensitive data within their systems. It can be credit card data, medical information, Social Security numbers, or anything else that requires security and protection. This data is taken out of the environment entirely using tokenization. It is then replaced with tokens that are unique to each piece of information.

What are Detokenization and Encryption?

Detokenization is a process that is completely the opposite of tokenization. It exchanges the token for the original number. This process can be done solely by the main system of tokenization. No other way exists to obtain the original number from just the token. These include single-use (low-value) operations such as one-time debit card transactions that don't need to be retained. They can also be high value for items such as a repeat user's credit card number that requires to be stored in any database for recurring transactions. Suppose a breach of a tokenized environment occurs. In that case, the exposed data is worthless to cybercriminals, virtually eliminating the risk of data theft. Encryption is a method in which sensitive data is mathematically changed. However, its original pattern is still present in the new code. This means encrypted numbers can be decrypted easily with the right key through either brute computing or a hacked/stolen key. Unlike encrypted data, tokenized data is irreversible and undecipherable. This distinction is particularly important. There is no mathematical relationship between the number and its token. So, tokens cannot be returned to their original form.

Advantages of Tokenization

There are various benefits of cloud tokenization. One of them is that there is no data to steal when the breach takes place. Because of this, it nearly eliminates the risk of data theft. Only the original tokenization system can swap the token with the corresponding primary account number when you process any payment using the token stored in your systems. It can then send this to the payment processor for authorization. Your systems never record or transmit the PAN. They only do so with the token.

Risks of Tokenization

Tokenization is not a system that stops hackers from entering the networks and systems. There are other security technologies designed for that purpose. Tokenization is a highly secure technique. However, no defense has proven to be completely impenetrable. Cybercriminals have many methods to prey on vulnerable firms through human error, malware, phishing emails, or brute force. In many cases, it's a matter of when an attack will succeed. Crypto market data firm Messari has released a list of DeFi assets. This publication of Messari's findings sparked a variety of responses on Twitter. Several people felt that DeFi was going straight into the ground. Just another series of scams. Many traders view the price slump as an opportunity to stockpile discounted tokens. It may be a good time to look up some at those prices. DeFi services have been getting traction recently. Some of the largest banks in South Korea decided to provide FX rate information to DeFi services.

Most DeFi tokens crash to nearly half in one week. Nearly all of the DeFi assets have posted a weekly loss due to the recent crypto market crash that has wreaked havoc on DeFi tokens. The bubble of decentralized finance appears to have popped for the time being. Over the past seven days, nearly half a dozen top DeFi tokens have shed half of their fiat value. Thirty-two of thirty-four markets were down over the past year. Only PowerPool and SushiSwap have posted seven-day price gains. The markets that were hardest hit include Curve. It has been down 65% in the past year. Meta followed with a 58% loss. Ren was at 52%, AirSwap with 51%, and bZx Network and Wrapped Nexus Mutual with a 49% draw-down each.

This selling has erased the profits enjoyed by most DeFi markets during a period of record volatility last year. More than 60% of the tokens featured in Messari's DeFi list posted a 30-day loss. Again, Curve led the monthly losers with a 58% loss. Bancor followed this with 57.8%, Kava with 50%, and Meta with 46%. Tokens of Ethereum, in general, had suffered this past year. Only 14 of 178 markets posted a gain. Seven of these are stablecoins. Only a couple of Ethereum security tokens were able to post double-digit gains in the past year. ZB and Origintrail topped the list with roughly 15% each. Only less than one-third of Ethereum tokens had retained 30-day gains.

Conclusion

Tokenization provides a convenient way to secure sensitive data and transactions. No tech can guarantee the prevention of a data breach. But a properly built tokenization platform can restrict the leaking of any sensitive data. It can stop attackers from capturing any type of usable financial or personal information.