Although tokenization and encryption are both data obfuscation techniques, they should not be considered identical or interchangeable. Both methods are essential for safeguarding data, whether at rest or in transit within an enterprise, yet they offer distinct levels of security and implementation flexibility.
When comparing tokenization and encryption, a key distinction is that tokenization does not allow the original data to be reconstructed. In contrast to encryption, tokenization does not use keys to modify the original data. Rather, it completely removes the data from a company's internal systems and substitutes it with a randomly generated, non-sensitive placeholder known as a token. These tokens can reside within a company’s systems for operational purposes, while the actual sensitive data is securely stored externally.
What is tokenization?
Tokenization involves converting a significant data element, like an account number, into a token—a sequence of random characters that holds no value if compromised. Tokens act as a reference to the original data but are incapable of revealing that data since they do not rely on a mathematical process for conversion. Unlike encryption, there's no key or formula that can be applied to revert a token to its original data. Tokenization employs a token vault, a database that maintains the association between the sensitive value and its token. The actual data within the vault is then protected, often using encryption.
Tokens' primary advantage is their lack of mathematical connection to the data they symbolize. If compromised, they are meaningless as there is no key to convert them back to the original data. Tokens can also be designed for added utility. For instance, a token can retain the last four digits of a credit card number so that a receipt can display a part of the tokenized number, aiding customer recognition of their card. The merchant, in this scenario, possesses only a token, not the actual card number, enhancing security.
What is encryption?
Conversely, encryption is the process of scrambling sensitive data into an unintelligible format, which can only be deciphered with the correct encryption key. Many websites employ Transport Layer Security (TLS) encryption routinely, safeguarding online transactions that could otherwise be attractive to cyber thieves.
Encryption transforms plaintext into ciphertext using an algorithm and a key, with decryption requiring the same or a corresponding key to revert to the original format. In asymmetric key encryption, also known as public-key encryption, two different keys are involved: a public key for encrypting and a private key for decrypting data. A merchant, for example, might use a public key to encrypt payment data before sending it for authorization, while the payment processor would use a private key to decrypt and process the payment.
Encryption users often rotate keys to mitigate the risk of a compromised key decrypting all sensitive data. By changing keys frequently, the amount of data secured by a single key is minimized, and if a key is breached, only data encrypted with that key is at risk.

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Tokenization vs. Encryption: How They Compare
Both tokenization and encryption are tools used to protect sensitive information from unauthorized access. While they serve a similar purpose, the methods and implications of each are distinct. Tokenization replaces sensitive data with non-sensitive equivalents, known as tokens, which can be used in various systems without bringing the original data into the system. Encryption, on the other hand, transforms data into a scrambled format that can only be deciphered with the correct decryption key. Below are some scenarios comparing how each functions.
- Data Format Preservation:
- Tokenization: Generally preserves the format of the data, allowing it to be used in systems without alteration (e.g., a tokenized credit card number looks like a regular credit card number).
- Encryption: Does not preserve the original format, resulting in a randomized string of characters that can vary in length from the original data.
- Reversibility:
- Tokenization: Reversible only through the use of a secure token vault, where tokens are mapped back to their original data.
- Encryption: Directly reversible, provided that the decryption key is available.
- Use Case Specificity:
- Tokenization: Often used for specific types of data that need to be protected in specific contexts, such as payment information in retail transactions.
- Encryption: More versatile, suitable for a broader range of data types and uses, including full-disk encryption and email security.
- Performance Impact:
- Tokenization: Minimal impact on system performance, as it typically involves simple database lookups to replace and retrieve tokens.
- Encryption: Can have a greater impact on performance, especially with strong encryption algorithms that require significant computational resources to encode and decode data.
- Compliance and Regulation:
- Tokenization: Can simplify compliance with regulations like PCI DSS, as tokens are not considered sensitive data and thus reduce the scope of compliance.
- Encryption: Provides a broad level of security that is recognized and often required by various regulatory standards across industries, including GDPR and HIPAA.
Use cases for tokenization and encryption
With more data migrating to the cloud, encryption and tokenization play important roles in securing cloud-stored data. Notably, if a government entity demands access to cloud data, service providers can only hand over encrypted or tokenized data, without the means to unlock the actual information. This protection applies equally if a cybercriminal accesses cloud data.
Tokenization is primarily used for safeguarding payment card information, helping merchants meet PCI DSS requirements. Encryption can also protect account data, but since the data remains in ciphertext, the organization must guarantee that all related technology infrastructures comply with PCI DSS standards. Tokens secure various types of sensitive or personal data, such as social security numbers, phone numbers, email addresses, and more.
While encryption is suited for structured data like payment card details and PII, it also secures unstructured data, such as extensive text passages or documents. Encryption is essential for safeguarding data shared with third parties and verifying identities online, with the recipient needing only a small key. Transport Layer Security (TLS) is the backbone of secure internet data exchange, and TLS certificates that verify identity rely on encryption.
Keep your keys secure
Today, both encryption and tokenization are employed to protect data within cloud services or applications. Organizations may choose encryption, tokenization, or a blend of both, depending on the data type and regulatory requirements.
Encryption alone is insufficient for securing payment or personal data. For comprehensive protection of data in transit and at rest, encryption and tokenization must collaborate, each performing essential security roles at various points in the payment process. It's important to monitor the storage locations of both keys and tokens, ensuring that access to these areas is secure.