Our financial and personal data is transferred across networks daily, so data security has been a crucial aspect when investing digitally. Both individuals and businesses must safeguard sensitive data against breaches and unauthorized access. An additional significant trend of 2024 is the growing use of cloud computing. Tokenization and hashing are two examples of secure data management techniques in high demand as more businesses shift their data to the cloud. Each performs significant work but they have particular responsibilities.
Both of these methods are effective tools, but they work on different principles. Tokenization involves substituting unique identifiers, or tokens, for sensitive data, while hashing converts data into a string of fixed length that is nearly impossible to decode. Notably, The Reserve Bank of India (RBI) has not witnessed any data breaches or compromises in the recent 15 to 18 months with the implementation of tokenization. We will examine what tokenization is, its uses, and the distinctions between these two approaches as we go deeper into the intriguing details of digital protection.
What is Tokenization?
Tokenization is the process of replacing sensitive data such as credit card numbers, PINs, or any other important information with a unique, randomly generated token that can never be used again. The token is often kept in a secure database and has no inherent value or significance. In due course, this token will be utilized each time an operation or request for access is performed instead of the original data. To decrease related data breaches and illegal access, tokenization primarily aims to secure sensitive information by replacing it with non-sensitive data.
They resembled encrypted passwords that are only known by the system. Furthermore, even if someone were to obtain them, they would be unable to determine what the initial sensitive information was because they are entirely random and unrelated to your actual data. It works similarly to hiding your credit card number from strangers by converting it into a secret number that only the system would be aware of.
Benefits and Working of Tokenization
By comprehending how tokenization functions in various contexts, such as Web3 applications and artificial intelligence, you can recognize its value in improving security and streamlining digital transactions.
Web3 Applications
Tokens in Web3 applications run on private blockchains, which allow them to work within particular protocols. This guarantees the security of the tokens and their suitability for use in decentralized settings. There exist three categories for identifying data which include intangible assets, financial assets, and physical assets. Tokenization under Web3 produces a variety of tokens including:
- Stablecoins: These are digital currencies with a value that is fixed and correlated with actual money.
- NFTs: These are irreplaceable tokens that act as electronic ownership documentation for goods that are traded.
AI Tokenization
In AI, tokenization is the process of separating phrases or words for analysis. Tokenizing the term ‘cat’ is one way an LLM might learn about its link with other words. This type of tokenization facilitates more efficient language processing and analysis by AI systems.
Now that you have made your pace with how tokenization works, here are the major benefits of tokenization, you should be aware of:
Improved Security
By substituting tokens for critical data, tokenization significantly lowers the danger of data breaches. Without the original data, these tokens are meaningless, even if hackers can obtain them. This prevents unauthorized access to critical information.
Simpler Compliance
Sensitive data protection is mandated by numerous laws and regulations, including the Payment Card Industry Data Security Standard (PCI DSS). By obscuring sensitive data during transactions, tokenization aids in adhering to these regulations. As a result, it is simpler to abide by the law and win over customers and authorities.
Quicker Trades
By eliminating the requirement of handling fragile data directly, tokenization facilitates faster transactions. Transactions become faster and more seamless when sensitive information is replaced with tokens. This lowers the possibility of mistakes or delays while also increasing client satisfaction.
Flexibility
Tokenization grows up simply as firms expand and handle more data. It offers a safe method of data sharing even in intricate systems. This implies that security and efficiency hold firm data quantities rise, enabling firms to adapt to shifting market conditions.
What is Hashing?
Another data security method is hashing, which functions in a different way than tokenization. It uses a one-way algorithmic procedure to convert any type of data be it texts, numbers, or images into a hash. This hash serves as the original data’s digital fingerprint. Password storage and data integrity checking are two popular uses of hashing. For example, your password is hashed and then compared to the saved hash when you enter it into a website.
Hashing uses a unique hash value that is based on the input data, such as MD5 and SHA-256. Since a single alteration to the input will yield a distinct hash, any interference or unauthorized adjustments can be easily detected. Digital signatures, file integrity checks, and password storage are just a few of the many uses for hashing.
Benefits and Working of Hashing
The term input refers to data such as a document or a music file that is supplied into an algorithm. This data might vary in length and structure. This input data is changed during the hashing process to produce a single output. The main component of this procedure is the hash function, which converts the data input into a fixed-length character string by executing several algorithmic operations on it. This function is made such that even little changes to the input yield a noticeably different hash value. The output, often referred to as the hash value, is fixed in length, unlike the input’s changeable nature, which makes it challenging to determine the original output. This set length improves security by guaranteeing that hash values unique character strings and numbers.
The benefits of hashing can be better understood with these major applications of it:
Data Integrity
Hashing protects data integrity by creating a hash value for the messages or files. By comparing the generated hash value with the received hash value, users may confirm whether any modifications or damage happened during transmission.
Effective Data Retrieval
By converting object information to integer values, hashing makes it easier to get data quickly from hash tables. Due to this, developers can store data in key-value pairs, which increases the effectiveness of searches over big datasets.
Safe Password Storage
By transforming passwords from plain text into hash values, hashing is necessary for safe storage of passwords. This increased security by adding a layer that makes it harder to figure out the original passwords, even in the market the hash values are stolen.
Applications For Cryptography
Cryptographic functions, such as SHA-2, are essential for producing digital signatures and guaranteeing the authenticity and integrity of data.
Blockchain Technology
Hashing ensures that everyone involved will have access to identical and secure records by preserving the confidentiality and immutability of transactional data contained in blocks.
Examples of Tokenization and Hashing
This is where we talk about the main examples of both tokenization and hashing to understand the context better:
Tokenization Example
When a customer uses his credit card to make an online transaction, the merchant’s database does not contain the actual credit card number instead it generates and stores a new one in its place. Transaction processing makes the token useful, adding an extra degree of security guard against breaches.
Hashing Example
User credentials are hashed and kept in a database using a password management system. The password is hashed concerning the store hash when a user tries to log in. Access is provided if they match, and the system never saves the password itself.
When to Use Which Data Security Technique?
The purpose and level of security you require will determine which technique you require tokenization and hashing. Hashing is the best option if you are working on something such as blockchain, where it’s crucial to ensure that data remains unchanged. Tokenization, however, is typically the best option if you are attempting to protect sensitive information in storage systems or during transactions.
When To Use Tokenization?
- Credit Card information, private identification number (PII), and other sensitive data must be protected.
- Strong protections for sensitive data are mandated by regulations such as PCI and DSS compliance.
- You must continue to be able to hold and analyze the original data for fraud investigations or customer support.
When To Use Hashing?
- When data is being transmitted or stored, you must confirm its integrity for instance making sure downloaded files haven’t been tampered with.
- Within a vast dataset, you must effectively locate specific data like looking for a certain file based on its hash.
- Passwords must be stored safely to avoid the possibility of easy access in the event of a breach.
Comparison Between Tokenization and Two-Way Hashing
Some implications permit two-way hashing, which permits the finding of the initial values under regulated circumstances, even though standard hashing is intended to be irreversible. Although this approach has its safety concerns.
Irrervisibility and Reversibility
Applications needing access to the original information can benefit from tokenization’s basic reversivbility (two-way). Secure lookup procedures allow the tokens to be reverted to their initial values.
Traditional hashing on the other hand is made to be reversible. Data cannot be undone once it has been hashed, increasing security but restricting access to the initial data.
Security Implications
If two-way hashing is not handled correctly, it may pose risks if it can offer flexibility in obtaining original values. Sensitive information may be recovered if an attacker manages to obtain the hashed data as well as the method for using it.
Higher security is typically provided by tokenization, which makes sure that private data is never kept in an accessible manner. The risk of exposure is decreased because the original data i kept safe in a different vault.
Hashing Decryption
Some tools claim to “decrypt” hashed values using techniques like brute force or dictionary attacks, even though conventional hash algorithms like SHA-256 are one-way and cannot be restored to their original form.
While standard hashing does not allow for controlled recovery of the original material, tow-way hashing does.
What Future Do They Hold Together?
Hashing and tokenization are crucial data security techniques, both are essential for safeguarding sensitive data and ensuring data reliability, despite their distinct roles. Businesses can reduce the likelihood of data breaches and unauthorized individuals gaining access to information by using these strategies. Customers and other stakeholders gain trust as a result.
Both hashing and tokenization have advantages and disadvantages. The ideal solution for your company will ultimately rely on your unique requirements. Hashing might be a preferable choice if you want an even higher level of security, but if convenience is more important to you tokenization can be the best option.
How SoluLab Can Help?
We at SoluLab recognize how crucial data security is. The most modern security methods are a part of our extensive service package to properly protect your private data. Our customized solutions guarantee compliance, reduce risk, and boost customer trust whether you’re an e-commerce platform managing customer data or a financial institution processing payments.
You may feel secure knowing that your information is safeguarded during the entire process, from transmission to storage, with SoluLab. Our team of professionals puts in a lot of effort to keep ahead of new threats and provide unique security solutions that are customized to meet your specific requirements.
