Feb 16 2023

What is the tokenization process and why it is so important?

Category: Information Security,pci dssDISC @ 10:27 am

A large number of e-commerce payment platforms use effective payment gateway tools and effectively integrate them with an acceptable payment strategy. Today’s e-commerce websites need to integrate anti-fraud tools, renew bank cards, integrate multiple gateways, and manage alternative payment methods.

It is important to get these complex integrations right and bring them together into one functioning system; choosing the right tokenization partner is the key to success in these processes.

What is the tokenization process and why is it needed?

Tokenization is an important process of replacing sensitive data, such as credit card numbers, with unique identifying information while preserving all important data information; a tokenization solution is a form of using a unique security key to provide an appropriate level of security to important confidential data.

Think of tokenization as a secret code that uses a key to retrieve an encrypted message. Some versions of the credit card number store the last four digits; however, the remaining digits of the credit number are random.

In this case, you can safely store the token in the database. Anyone with access to this token cannot use it to compromise your credit card account. For these tokens to be used to process credit card transactions, they must be re-linked to the original credit card numbers. Typically, this mapping is performed by a secure third party. All this is done to ensure full security.

Blockchain technology is a technology that most people associate only with cryptocurrencies. This attribution is not entirely incorrect, as the blockchain was created for the Bitcoin cryptocurrency. However, much has changed since 2009 (the year Bitcoin appeared), and the scope of blockchain technology continues to actively expand.

One of the key applications of this technology today is tokenization, a secure form of digitization based on the blockchain technology mentioned above. The process of tokenization consists of assigning a specific value to a symbol, which can exist materially or immaterially, and is a digital “token” that stores data. With this efficient solution, you can securely buy and sell your assets online.

Examples of this use of tokens include the value of the stock market. Most of us associate stocks and bonds with paper-based notices of ownership of those assets, but tokenization allows us to replace those paper notices with digital versions. The implementation of traditional solutions in the digital world simplifies and optimizes a large number of important processes, making them significantly more efficient.

The terms “token” and “cryptocurrency” are often confused and used interchangeably; not surprisingly, both concepts are closely related to blockchain technology. The key difference between cryptocurrencies and tokens is that cryptocurrencies are a means of payment, whereas tokens cannot; they can be compared to a kind of chip.

A token is created using smart contracts on a specific blockchain network and can perform various key functions. Each blockchain network can contain an unlimited number of tokens.

On the other hand, a smart contract is a kind of computer program embedded in a certain blockchain network that automatically enforces the terms contained in it. Both tokens and cryptocurrencies can be transferred on the blockchain network; however, token transaction fees depend on the cryptocurrency.

What information must be provided for tokenization?

Tokenization is commonly used to protect credit card numbers, a process mandated by the Payment Card Industry Council (PCI). However, there are many different use cases, tokenization terminology allows you to learn a variety of effective tools that provide active growth in the field of security for business organizations for which it is important to reliably protect confidential data.

Consider personal or personally identifiable information. HIPPA, General Data Protection Regulation (GDPR) requires confidential processing, anonymization, and secure storage of personal data. Organizations and various business environments should use tokenization capabilities when the business needs to securely store confidential information, such as:

  • ID number;
  • Date of birth;
  • Gender or race;
  • Driver’s license;
  • Credit card number;
  • Valid phone number;
  • Bank account number;
  • Social insurance number;
  • Current residential address of clients;

Due to the universality of tokens, they are divided into several types that perform different functions. One of the key differences is between mutual tokens and non-splitting tokens. For example, payment tokens are used to make payments. Their function is mainly to ensure the safety of investors. Issued security tokens are protected by law and represent specific stocks, bonds, or other assets of genuine interest.

Are my tokens safe?

Undoubtedly, there are many advantages to using tokens, but is it safe to store data? Security is considered one of the most important benefits of tokenization. Stability, irreversibility of transactions, and elimination of intermediaries are just some of the characteristics that affect security when using blockchain technology.

In addition, the security of tokenization is provided by smart contracts that allow parties to trade directly. For example, selling real estate in the form of tokens does not require a notary or a real estate agent. Everything is done quickly and directly.

Note that each contracting party must ensure that personal tokens are properly stored and protected from loss to properly act as guarantors of successful transactions. Tokenization is a form of business digitization based on blockchain technology.

The potential of tokenization is huge and has yet to be fully explored. Tokens are divided into different types. The most common use of tokens is to digitize different types of assets, such as physical assets, digital assets, projects, company shares, shares, or loans.

What are the different types of tokenization processes?

When it comes to PCI tokens, there are three key types of tokenization: gateway tokenization, end-to-end tokenization, and payment service tokenization. Gateway tokenization. When you do e-commerce, you most likely get paid through a payment gateway.

Most gateways have technology that allows you to securely store your credit card in the system, then issue a refund and delete your card data. The downside is that each gateway provides its token scheme. This means that you cannot use this gateway. Changing gateways is often a time-consuming and expensive process of moving customer data to a new gateway for secure processing. 

In some cases, the gateway may not allow these actions. End-to-end tokenization. Some independent tokenization providers have their technology that sits between your e-commerce site and the gateway. These end-to-end token providers allow you to use your existing gateway integration code.

One of the key advantages of this type of tokenization is that it uses existing technology and can be adapted at a very fast pace. It also has the advantage of modularity. Unlike gateway tokenization, modularity can be actively used for more than just credit card payments. You can use the tokenization model to connect to most APIs and tokenize data other than credit card data.

End-to-end tokenization is an evolution of gateway tokenization. This gives payment solutions the freedom to route transactions to different gateways in real-time, avoiding costly and time-consuming transfers of card data between different payment platforms.

Tokenization processes of various important payment services

A key tokenization strategy is the payment service model. This model offers a single API that, when integrated, can route payments to multiple gateways. The payment service model is best suited for companies with more complex payment needs.

This model works well when a company needs to pay in several regions or several different currencies or through several gateways. A disadvantage of the payment service model is that existing gateway embed code cannot be reused.

In addition to reduced PCI coverage and increased security, the tokenized payment service model has unique key benefits from its active use. The payment services model not only simplifies your embed code but also takes control of your tokens away from the payment gateway. Unlike gateway tokenization, tokens provided by third parties can be actively used with supported gateways. 

Tokens issued by payment gateways cannot be used against competing alternative gateways. Security and compliance alone are reasons enough to implement a popular solution like the tokenization of various assets that are important to you, your company, and your customers.

The truth is that key security requirements for online payments are difficult to implement on your own. In particular, startups often choose to sacrifice security for time to market. Accepting online payments makes your business a target for cybercriminals. Hiring security experts and implementing effective tokenization processes can save your business environment valuable time and money in the long run.

Keep these practical tips in mind. Choose a reliable tokenization partner, test the tokenization, what level of protection you can achieve by working on the integration, and find a vendor that can integrate multiple gateways, methods, and services into a single integration. One of the key technologies needed to connect all payment solutions is tokenization.

A trusted provider fully controls tokens, provides redundancy, reduces PCI coverage, and improves the security standards in place in your business environment.

What can be tokenized?

The use cases for tokenization can grow endlessly. Since anything can be digitized, tokenization is often used in professional life. These are various business projects that can demonstrate the most practical examples of using tokenization.

Digitization of the company involves the creation of tokens that are closely related to a specific project. Tokenization techniques that add value to tokens can be used as an indispensable tool for automating processes in companies and as a means of financing them. Real estate tokenization is becoming more and more popular worldwide due to the following features: transaction speed, lack of intermediaries, and security.

The process of property tokenization involves issuing tokens on the blockchain network and linking them to certain properties. Thus, the investor becomes a co-owner or owner of a certain asset, the shares of which can be represented in tokens.

Using blockchain technology and a specially designed platform, it is also possible to assign unique numbers to gems and certain forms of ore to determine their authenticity.

Raw materials registered with digital numbers can then be identified by verifying their origin, properties, and associated processes. NFT tokens have the unique potential to revolutionize both the physical and digital art markets. Each NFT token has a unique, non-tradable value that allows you to express your interest in the rights to a work of art, making investing in art an easy and fast process.

What is the tokenization process and why it is so important?

Digital Finance: Security Tokens and Unlocking the Real Potential of Blockchain

Blockchain and the Future of Finance

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