Data Tokenization vs Data Encryption: Explained

Learn the difference between tokenization and encryption and how to choose the best for your data

Data security is crucial for any organization that collects, stores, or processes sensitive data, such as personal information, financial records, or intellectual property. Data breaches can result in severe consequences, such as reputational damage, legal liability, regulatory fines, and customer loss.

Organizations can use various techniques to protect data from unauthorized access or misuse, such as tokenization and encryption. Both methods aim to replace the original data with a different representation that is meaningless to anyone who needs the proper authorization or key to access it. However, they differ in how they achieve this goal and what benefits and challenges they offer.

What is Data Tokenization?

Data tokenization is substituting a token (or data with no significant value) for actual information. Tokens are randomly pulled from a token vault database to replace the real data. For example, when an online business accepts payment from a customer using a third-party site like PayPal or Shopify, the third-party site may disguise the credit card number with other characters (tokens) to protect the customer's information. The business can only see the tokenized information and cannot access the card number.

Advantages of Data Tokenization

Data tokenization means that your data is not compromised if a breach occurs. Instead of gaining access to sensitive data, hackers can only see the useless tokens.

Data tokenization reduces the in-house responsibility of managing sensitive data. When you store data in a third-party database, you do not need to maintain the staff and resources needed to manage sensitive data. You also reduce your compliance burden, as you do not need to follow strict regulations for storing sensitive data.

Data tokenization preserves the feel and format of data. Tokens can have the same length and structure as the original data, which makes them compatible with existing systems and applications.

Disadvantages of Data Tokenization

Data tokenization adds complexity to your IT infrastructure. You must integrate your systems with the third-party database and ensure its availability and security. You must also manage the tokens and map them to the original data.

Data tokenization is slower than encryption. Tokenization requires accessing the token vault for each transaction, which adds latency and network overhead. Encryption uses algorithms to transform data, which is faster and more scalable.

Data tokenization is irreversible. Once you tokenize your data, you must access the token vault to get it back. This may limit your ability to analyze or use your data for other purposes.

What is Data Encryption?

Data encryption is the process of encoding a message, data, or file so that it can be accessed and read only by certain people with the proper key. Encryption uses algorithms to convert plain text information into a non-readable form called cipher text. For example, when you send an email with sensitive information, you can encrypt it with a password or a digital certificate so that only the intended recipient can decrypt and read it.

Advantages of Data Encryption

Data encryption protects your data in transit and at rest. Encryption ensures that your data is secure when you send it over the internet or store it on a device or a cloud service. Even if someone intercepts or accesses your data, they need the key to read it.

Data encryption is easy to scale for large data volumes. Encryption uses keys to encrypt or decrypt data, which are much smaller and faster than tokens. Encryption supports various data types, such as structured and unstructured fields or databases.

Data encryption is reversible. You can always decrypt your data with the key if you need to access or use it for other purposes.

Disadvantages of Data Encryption

Data encryption requires key management. Securely and efficiently generating, storing, distributing, and revoking keys would be best. Key management can be complex and costly, especially for large-scale deployments.

Data encryption does not preserve the feel and format of data. Encryption changes the length and structure of data, which may make it incompatible with existing systems and applications. You may need to modify your systems or use additional tools to handle encrypted data.

Data encryption is vulnerable to key compromise. If someone obtains your key, they can decrypt all your data that was encrypted with that key. Protecting your keys from unauthorized access or theft would be best.

Which Technique is Right for Your Organization?

The choice between tokenization and encryption depends on various factors, such as your security goals, data types, data volume, system compatibility, performance requirements, and cost constraints. There is no one-size-fits-all solution, and you may need to use both techniques for different scenarios or combine them for enhanced security. You should evaluate the pros and cons of each technique and consult with experts to find the best option for your organization.