One of the buzzwords in the blockchain world you are probably constantly hearing about yet are uncertain on what it means is ‘tokenization.’ As new mobile payment apps are being developed, and our number of payment options is getting bigger and bigger, tokenization is a key element in all of these conversations.
Simply put, tokenization adds an additional level of security to sensitive credit card data. But before we go into all the details of tokenization payments, let’s take a look at the definition of tokenization to better understand everything it entails.
Definition of tokenization
Tokenization is a process of protecting any kind of sensitive data by replacing that data with an algorithmically generated number.
Quite often, tokenization is utilized to prevent credit card fraud. With credit card tokenization, randomly generated numbers will replace the customer’s primary account number (PAN). These randomly generated numbers are called ‘tokens.’
They can be passed through the internet or numerous wireless networks required for the payment process without exposing actual bank details. This way, the actual bank account number stays safe in a secure token vault.
When it comes to the process of tokenization, its objective is to prevent all the bad guys from duplicating a user’s bank information onto another card. Unlike chip cards, which protect against fraud with physical payments, tokenization’s goal is to fight online or digital breaches.
Just by doing basic research, you’ll probably come across a security token offering (STO), a type of public offering where tokenized digital securities are being sold in cryptocurrency or security token exchanges. Since tokens are classified as securities, security token offerings are more susceptible to regulation and are a more secure investment option than initial coin offerings.
Tokenization versus encryption
Sensitive cardholder detail is replaced with a stand-in token, thanks to…
