Tokenisation

Glossary

What is Tokenisation?

Tokenisation is the process of substituting sensitive data with unique identification symbols that maintain all relevant information about the data while ensuring its security. The primary objective of this solution is to lessen the amount of sensitive data an entity must keep.

Moreover, it has become a popular method for small and medium-sized businesses to improve and fortify the security of e-commerce and credit card transactions while lowering the cost and complexity of complying with government regulations and industry standards.

Tokenisation’s Function

Tokenisation replaces sensitive information with equal non-sensitive data, which produces tokens that serve as non-sensitive replacement information.

These methods can generate tokens:

  1. Using a mathematically reversible cryptographic function and a key.
  2. Use an index function or a randomly generated number.
  3. Using a non-reversible function, such as a hash function.

As a result, the token becomes the exposed information, while the sensitive data it represents is securely kept on a centralized server called the token vault. The token vault is the only location where the original information can be traced back to its matching token.

Tokenisation’s Advantages

Tokenisation makes it challenging for malicious attackers to access cardholder data, unlike prior systems in which credit card details were stored in databases and freely shared across networks.

The primary advantages of Tokenization include the following:

  1. It is more adaptable to legacy systems than encryption.
  2. It requires fewer resources than encryption.
  3. It decreases the potential consequences of a data leak.

Hence, this feature simplifies the payment industry by promoting innovative technologies such as mobile wallets, one-click payments, and cryptocurrency. It also establishes client trust by improving the security and convenience of a merchant’s service.

Tokenisation’s Origin

Tokenisation has existed since the establishment of early monetary systems, with coin tokens serving as alternatives for genuine coins and banknotes. The idea for online Tokenization came from this strategy, where the digital token acts as a proxy for a more valuable item.

Therefore, there is a trend in which payment card businesses employ Tokenization to protect sensitive cardholder data while also meeting industry standards.

Types of Tokens

There are numerous ways to classify tokens, but law enforcement and relevant agencies have defined three classes of tokens based on their link to the underlying asset.

  1. Asset/security token: These tokens offer a favourable return on investment and are economically similar to bonds and stocks.
  2. Utility tokens: These are designed to serve other purposes besides payment. It enhances a product’s functionality.
  3. Currency/payment token: These are only intended to be used as a payment method for goods and services unrelated to the platform on which they exist.

A significant distinction exists between high- and low-value tokens in a payment setting. A high-value token is a direct substitute for a PAN in a transaction and can be finished alone. Low-value tokens (LVTs) substitute PANs but cannot complete transactions. Instead, LVTs must trace back to the original PANs.

Tokenisation’s Difference with Encryption

Digital tokenisation and encryption are two separate cryptographic technologies used for data protection. The main distinction between the two features is that Tokenization does not impact the length or type of the data being secured, but encryption does.

This aspect renders the encryption meaningless to anyone without a key, even if they can view the encrypted message. Tokenization does not need a key in this subject; it is not reversible with a decryption key. To represent secret data, tokenisation uses non-decryptable information.

Encryption has traditionally been the chosen solution for data security. However, there has been a recurring trend where other parties are transitioning toward Tokenization as a more cost-effective and safe approach.

Despite the challenges posed by improving cybercriminal threats globally, Tokenization remains one of the most reliable security features for various industries, especially finance. Hence, organizations should consider employing this solution to take advantage of its services.

How can iZOOlogic help my Company or Organization?

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