Tokenization vs. Encryption: What’s Best for Data Security?

Tokenization and encryption are two sides of the same coin in data security. While they share similarities, the key difference lies in how they protect sensitive data and when each is best applied.

As security becomes a critical norm, using half-baked security practices without understanding the use of tokenization and encryption can lead to data vulnerabilities, cyber risks, or malware.

Evaluating the applications of tokenization and encryption before securing data assets provides security to critical data operations and strengthens data governance and protection standards. 

Evaluating the correct type of data security, whether tokenization or encryption with encryption software would assess the potential implications and give the best alternative.

Overall, one technique will be superior based on the use case and other requirements. Anyone who claims a single best technology is the solution for everything is selling you something. Let's find out what tokenization and encryption does in detail.

Let’s dive deeply into tokenization and encryption and understand these concepts in detail. 

What is tokenization?

Tokenization replaces sensitive or private elements with randomly generated non-sensitive data, called tokens. These tokens map back to the actual values but cannot be reverse-engineered. 

Tokens have no exploitable value and can take any shape. A tokenization platform helps you convert sensitive data into tokens to use in its place, ensuring data privacy and security. 

Source: Wikipedia

Description: This is a simplified example of how mobile payment tokenization commonly works via a mobile phone application with a credit card. 

How tokenization works

With tokenization, you can only access the original information by looking up the tokens table. 

Here’s how the process works: 

• Data classification identifies sensitive data that needs protection, such as personally identifiable information (PII), DSS, HIPAA or other sensitive data. 
• Token generation randomly generates a token for each item of sensitive data. They can be alphanumeric characters with no real meaning. 
• Token mapping links the tokens with the original sensitive data on a key-value map, also called a tokens table. 
• Data security processes store sensitive data in a safe, isolated vault with the tokens table. The vault is protected by strong security features and access controls. 
• Tokenized data usage sends tokens instead of real data whenever an application requires access to sensitive information. If the system has required permissions, the tokenization engine searches the original data linked to tokens. 

Here’s an example of tokenization:

Source: Piiano

When implementing tokenization, keeping the tokenization system separate from the data processing systems and applications is advisable. This reduces the risk of reverse-engineering attacks, including brute force. 

Studying de-tokenization

Authorized users sometimes require access to sensitive information during runtime processes, transactions, analysis, or reporting. De-tokenization helps them retrieve original data from tokens. 

De-tokenization allows individuals to see the original data, but only with privileged access. Once verified, the vault looks up the token in the token table and returns the original values.

Types of tokenization

There are two types of tokenization: vault and vaultless.

Traditional and vault tokenization

In traditional tokenization, relationships between original sensitive values and tokens are stored in a centralized location. This vault secures original data in an encrypted format (for additional protection). Whenever access to original data is required, the vault verifies access permission and gives access to the original data if authorized. 

 Vaultless tokenization

Vaultless tokenization operates differently. Instead of storing data in a third-party location, the tokenization process happens on the user’s device. Tokenized data is sent for processing for any usage, never exposing the original datasets. 

It controls local users' sensitive data, ensuring data sovereignty and privacy.

Benefits of tokenization

Tokenization can be a crucial and easy security method to handle sensitive data without any major computation. Below are some benefits of tokenization:

• Data security:  As data gets morphed into a completely different looking token that looks nothing like original data packet, this technique can reduce scope of data breaches and cyberattacks.
• Compliance audit: Tokenized data reduce governance and compliance audits as tokens cannot be reverse engineered to reveal the true data value without user's permission to access token vault.
• Database management: Tokens are compatible for large databases because it secures database via vault embedding. It allows data security specialist with modest technical knowledge to transmit data safely without making it complicated. 
• Ease of computation: Tokenization requires just a social security number which helps access token vault and the real data value. Unlike encryption, it doesn't convert data into a cryptic mathematical format that needs proper expertise to retrieve the original value.

Challenges of tokenization

While tokenization seems like a simple and effective process, there are potential limitations that one needs to be aware of:

• Dependency on the tokenization system: A token cannot be decrypted until the user doesn't have a social security number. For sensitive data that needs quick action, like credit card numbers or payment processing, tokenization might delay or halt data exchange between two servers.
• Limited interoperability: Tokens have limited interoperability across various operating systems and devices. It might not suit all kind of computing environment and can't function without proper user authentication. 
• Compliance issues: Even though tokenization reduces compliance issues like PCI DSS or HIPAA, it always carries a risk of being leaked or infiltrated as a lack of compliance or data governance. 
• Lack of scalability and universality:  Tokenization isn't the "best" when it comes to secure all kinds of data transmission workflows as it only works with structured data. This makes it a "less preferred" technique for more sensitive data transactions.

What is encryption?

Top encryption software transforms readable plaintext information into unreadable ciphertext, masking sensitive information from unauthorized users. Depending on the algorithm and the encryption key size, the process can range from simple to highly complex. 

Encryption uses mathematical models to scramble data. Only parties with decryption keys can unscramble it. The process protects data at rest, in transit, or while processing. 

The key objectives of encryption include: 

• Data confidentiality: Ensure only authorized parties have access to data. 

• Data integrity: Protects the encrypted data from being altered during transmission. 

• Authentication: Helps verify the identity of the communication party. 

• Non-repudiation: Prevents any party from denying their involvement in growing or sending a selected piece of data. 

How encryption works

As the number or length of cryptographic keys increases, so does the strength of encryption. If the cryptographic keys are short, it becomes easy to guess through techniques like brute-force attacks.

Let us understand encryption with an example. Suppose you want to send a package to a friend and ensure the mail handler doesn’t open it. You’ll put the package in a box and lock it with two codes. When you use one code to lock the box, you’ll need the other code to open it up. These two codes represent the public and private keys.

In this case:

• The public key is the code you share openly, allowing anyone to lock the box.
• The private key is the confidential code used to unlock it.

Asymmetric encryption works similarly: the sender uses a public key to encrypt data, and the receiver uses the private key to decrypt it. You can also use it to verify the sender's identity. Suppose you add a second lock that you close with your private key. If your friend can open it using your public key, they’ll be able to verify that you sent it. 

Other types of encryption exist, such as symmetric encryption. In this type, the sender and the receiver use the same key to encrypt or decrypt data. 

Types of encryption

There are two types of encryption software: symmetric and asymmetric encryption. 

Symmetric encryption

Symmetric encryption, also known as the shared key algorithm, uses one secret key to cipher and decipher the information. It’s one of the oldest encryption techniques and executes faster, making it suitable for transmitting data in bulk. 

Source: Wikipedia

Common examples of symmetric encryption include: 

• Advanced encryption standard (AES): The National Institute of Standards and Technology (NIST) developed the AES as an alternative to the Data Encryption Standard. It has three key lengths, including 128-bit, 192-bit, and 256-bit encryption keys.

• Data encryption standard (DES): The US government adopted it as the official standard for encrypting computer data in 1977. 

• Triple data encryption standard (3DES): It runs DES three times with three separate keys.

Asymmetric encryption

Asymmetric encryption is also known as public key cryptography. Remember how we ensured that the mail handler didn’t open the package? We used asymmetric encryption to ensure it. 

Asymmetric encryption uses two keys, a public key and a private key. To ensure the message’s confidentiality and integrity, the sender usually reveals the public key, and receivers use the sender’s private key to decrypt and read the message. 

Secure Socket Layer (SSL) or Transport Layer Security (TLS) certificates use asymmetric encryption to ensure website security.

Source: Linkedin

Below are some examples of asymmetric encryption. 

• Rivest-Shamir-Adleman (RSA): Browsers often use this method to connect to a website or virtual private networks (VPNs) internally within a system setting.

• Elliptic curve cryptography (ECC): This method combines elliptic curves and number theory to encrypt data. They give more robust security with smaller and more efficient keys. For example, an RSA key of 15,360 bits equals an ECC key of 512 bits. 

Studying decryption

Decryption is encryption’s reverse - it converts ciphertext back to plaintext, making it readable. Like encryption, decryption relies on cryptographic keys to restore encrypted text back to its original form. 

Benefits of encryption

Because encryption follows cryptography and ensures critical paths or protocols during packet exchange, here are some sure-shot benefits of encryption.

• Eliminates packet loss: Encryption wraps up data in American Standard Code for Information Exchange (ASCII) code with encryption algorithm and encryption key and creates cipher text that eliminates the possibility of packet loss during transfer of files. 
• Strong data protection: Encryption can provide a robust security framework both for structured and unstructured data like entire files, disks, folders, hard drives, and ensure complete confidentiality of data. 
• Widespread standards: Standardized protocols like (RSA public key algorithm) sets strong world benchmarks of security with powerful cryptography algorithms and almost non-breachable network architecture.
• Confidentiality (data at rest): Encryption ensures data confidentiality even during mayday havocs. In case data is stolen or leaked, the true data values remain latent within the data packet and couldn't be accessed without encryption key. 
• Granular security control: Data encryption can have member-specific private keys that enables role based access control (RBAC) which ensures a user can view a specific part or component of a database as per their role and designation. 

Challenges of encryption 

While encryption provides a foolproof way of data transmission, the user needs to be wary of making some pre-security checks lest it leads to following challenges:

• Key management complexity: Safeguarding encryption keys, whether public or private is critical. Failure to vault the keys results in permanent data damage and can trigger a company wide data breach.
• Performance overhead: Encrypting and decrypting data requires significant hardware and software processors, thus impacting system performance and disturbing server loads.
• Broad compliance scope: Encrypting data still may fall under compliance regulations, that increases audit complexity and increase the legal or environmental implications of protecting data.
• Risk of weak implementation: Poorly encrypted data (like weak keys or weak cipher text) can increase the ineffectiveness of encryption and make it susceptible for viruses or external interference of hackers.

Comparing tokenization and encryption objectively: key takeaways

Tokenization and encryption improve data security through different approaches. Let’s compare them objectively to choose a suitable technique for your needs, use case, and business requirements. 

• Working process: Encryption scrambles data into an unreadable format, while tokenization replaces sensitive information in data with randomly generated tokens. 

• Supported data type: Encryption supports structured and unstructured data, and tokenization supports structured data like payment card details and social or security numbers.

• Use cases: Encryption is great for securing data at rest. Tokenization is preferred for e-commerce transactions and use cases where you must reduce the payment card industry (PCI) scope by passing tokenized data downstream for further processing.

• Data exchanges: With encryption, third parties with the key can access the data. Tokenization, however, requires access to the token vault for data exchanges, limiting its suitability in some scenarios. 

• Security: In encryption, sensitive data leaves the organization in an encrypted format. When it comes to tokenization, the data usually never leaves an organization.

• Adaptability: Encryption makes it easier to scale when you’re working with large volumes of data. On the contrary, tokenization presents scalability challenges as the database grows. 

• Tradeoffs: To retain the data format, you might have to compromise a little on the encryption strength. Tokenization maintains the data format without compromising on security. 

• PCI compliance: PCI encryption standards require a lot of resources, increasing operating costs significantly. Tokenization reduces the costs associated with PCI, as merchants don’t handle the payment information directly. The tokenization process isn’t a PCI compliance requirement; however, it’s an established payment processing practice. 

Secure the right choice!

To choose between encryption and tokenization, evaluate your data security needs and the type of data you’ll work with. Tokenization is good for smaller pieces of data like credit card numbers. However, if you’re working with large volumes of data, encryption will be a more suitable choice. 

Check into the options that would make it easier to comply with data security policies while ensuring feasibility with your budget. 

It’s best to use both techniques together wherever possible, as they’re not mutually exclusive. 

Learn more about SSL and TLS certificates and how they keep websites encrypted. 

Edited by Monishka Agrawal