What is tokenization

What is tokenization and why it matters for companies?

With the blockchain hype, tokenization is in the centre of every conversation.
But what does it 
mean for companies?  

Tokenization effectively masks key business data to protect it from ill intended intruders. It is one of the simplest ways to improve cybersecurity, safeguard customer trust and avoid damaging data breaches. So why do so many businesses still struggle with the concept? This is what means for companies and how to implement it. 

What is tokenization?

In the general sense, a token is representation of something else with a higher value or importance. Take, for example, casino tokens, which represent real money, but have no value outside that casino. In logistics, a parcel is normally identified by a tracking number. While this string of numbers and letters may mean nothing to carrier A, for carrier B it holds all the information they need to transport and deliver, such as the delivery address, weight and dimensions of package and real-time location. 

 The same goes for software. A token represents the right to perform operation, just like security tokens, session tokens, or access tokens. Tokenization replaces sensitive data with other data (tokens) that hold no meaning or value to third parties. These unique identifiers contain the entirety or just a portion of the essential data to be protected and cannot be deciphered by anyone other than the party that emitted it and the party that is supposed to receive it. Tokenization is thus an important security protocol because even if tokens fall into the wrong hands, they are impossible to reveal, trace or decipher. 

Tokenization Services

Source: truust

The concept of tokenization was created in 2001, by TrustCommerce. In the early days of ecommerce, the goal was to protect payment data for one of their merchant clients, evading the risk of card holder data theft. With this solution, TrustCommerce stored customers’ credit cards and other banking information in a six-digit, alphanumeric BillingID, making the sensitive data contained in the token intelligible to other entities. 

Why is tokenization important?

While tokenization is often used in credit card processing, it safeguards other sensitive data or personally identifiable information like medical or criminal records, social security numbers, loan applications, stock trades or event voter registrations. 

One of the most popular tokenization in the blockchain is NFT Tokenization. NFTs are digital data that represent unique assets that can be used as proof of ownership and allow for trading items or for authenticating transactions. NFTs are already applied for art, games, and intellectual property.  

Governance tokenization, on the other hand, is directed toward voting systems with decentralized protocols. There are also tokens for utilities, which provide secure access to diverse services. 

How can tokenization affect your company? 

Tokenization can be used by, for, and within companies. These are the key benefits of tokenization for businesses: 

#1 – Reduced risk of data breaches 

Data is precious nowadays, as we currently live in the data era. Because of this, data breaches are increasingly common, and increasingly sophisticated. If your customers’ data are tokenized, i.e., protected, data breaches become less of a risk and have much less serious implications.  

#2 – Improved customer-business relationships 

This is a no-brainer. Customers want their personal data safe. The safer they feel, the more trust they put on your business. And trust goes beyond just payment information. It includes other sensitive data, like phone numbers or email addresses. 

#3 – Improved internal security 

Most businesses strive to connect data from different areas to provide cross-functional insights. But sometimes, sensitive pieces of data, like medical records, cannot be reconciled with customer data, due to privacy violations. Tokenization can fix this by masking sensitive information so that data can be communicated across departments, such as billing and marketing, without breaching privacy. 

#4 – Legacy system communication 

An underrated benefit of tokenization is its ability to work well with legacy systems. An application and/or database that has been in use for years does not need reinventing, and it does not need to be built from scratch, to tokenize the information secured in it. 

#5 – Reduced cost vs. encryption  

Encrypting data uses more resources than tokenization and has a higher risk of failure compared to other data-masking methods. 

# 6 – Improved compliance 

Tokenization dramatically reduces the costs and efforts required to comply with security policies and regulatory standards such as the Payment Card Industry Security Standard (PCI DSS) and simplifies the protection of other sensitive data, including personally identifiable information (PII).  

How can you get started with tokenization in your business? 

As always, one repeated question with innovation is “Is this really for my business?” There is this idea that only highly technological companies can use the newest technologies, and that small businesses can never benefit from anything new. This could not be more wrong. Innovation is key for success, be it for a company of ten, or of ten thousand workers. The secret, though, relies on knowing which technologies can benefit your business, how to set up the whole transition, and when to do it. And this is where we come in. 

At Near Partner, we are fans of innovation. Are you looking for a tokenization solution? Get in touch! Tell us what you need and let us collaborate with you to get to the best result.  

Sérgio Cunha

I have been a developer for longer than I can remember (well... maybe not). Does that sum up everything about me? I love tech, but I’m also a husband and a father, I love to learn new stuff and experiment with life."Hack hard and prosper!" has been my latest motto. Take good care of yourself and the rest will follow…