Is Tokenization the Future of Data Security?

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Last month, Meta, the company formerly known as Facebook, threatened to pull Facebook and Instagram out of Europe over European data regulations. As it stands now, Meta is restricted from transferring or storing European citizens’ personal data on servers in the U.S

U.S. lawmakers have a different view on privacy than those in the EU and other parts of the world. Laws in the U.S. favor corporations at the expense of citizens whereas those in the EU do the opposite. 

Maybe the answer to this dilemma isn’t legislation or regulation. Perhaps, instead, it’s tokenization.

5 Ways Tokenization Protects Data

The concerns of EU legislators are legitimate. Citizens want their data protected. With events like the Cambridge Analytica breach, citizens all over the world—including North America—have a reason to be concerned about data protection. 

By the same—ahem—token, the concerns of lawmakers in the U.S. are legitimate. Companies should have the right to collect user data if consumers agree to it. If consumers do agree, as many in the U.S. do, companies have an obligation to protect that data from misuse and should face stiff penalties if they fail. This is where tokenization can benefit both consumers and large corporations like Meta.

Data tokenization provides 5 clear benefits to consumers and corporations:

  1. Tokenization + encryption enhances data security – Tokenization is less vulnerable to security breaches than encryption, however, tokenization and encryption together make data protection stronger. 

  2. Tokenization puts the control in consumers’ hands – If data was tokenized on stored on a blockchain, individuals could choose who to share their personal data with and how much of that data to share. Data could also be customizable to fit consumers’ interests and level of comfortability.

  3. Tokenization saves corporations money – Every time a data security breach occurs, a company gets sued. Increasing data protection would mitigate lawsuits and save companies money in litigation and settlements.

  4. Tokenization reduces compliance requirements – With tokenization, Meta would not need to concern itself with where its servers are located as long as consumer data is secure and tokenization was handled by a third party. That would lower costs for Meta, lower the burden of regulatory compliance, and protect it from lawsuits.

  5. Tokenized data is immutable – With current data protection technology, data can easily be altered. Tokenized data stored on a blockchain would be immutable and unchangeable.

There are likely other benefits to data tokenization, but the bottom line is that tokenization plus encryption increases data security, allowing citizens to feel more at ease and more in control of their data while corporations can continue providing products and services without fear of costly litigation due to data security breaches.

How Tokenization Works

Tokenization is simply the process of replacing sensitive data with a random string of unrelated characters. It doesn’t protect servers from hackers, but it does protect the data from being usable to the hackers.  

In simple terms, a company that holds a token giving it access to consumer data must use a special key to unlock that data. That key is stored in a different location than the data and the token that represents it. Each consumer the company does business with can have their own token and each token requires a different key to unlock it. A hacker that breaks into the company’s servers may gain access to the tokens, but without the keys to unlock them cannot gain access to the data those tokens represent.

 

For the best protection, companies using a tokenization model for data security would store token keys in a cold wallet away from internet or cloud resources and use them only when they need access to customer data. In this scenario, everyone wins—except the hackers.

 

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