Tokenization has become a buzzword in the payment industry. With the increase in the number of cybercrimes, it has become necessary to find ways to secure payment information.

What is Tokenization?

Tokenization replaces sensitive information with non-sensitive information, referred to as a token. The payment industry involves replacing a credit card number with a unique token identifier. This token is used in place of the credit card number to complete a transaction.

How is Tokenization Important in the Modern Payment Scenario?

Tokenization is essential in the modern payment scenario because it reduces the risk of cybercrime. Cybercriminals are always looking for ways to access payment information, and tokenization makes it difficult for them to do so. With tokenization, even if a cybercriminal intercepts the payment information, they cannot use it because the token is not the actual payment information.

Types of Tokenization

Tokenization that occurs outside of the blockchain refers to the trading of digital assets that are not related to NFTs or smart contracts. Different types of tokens and tokenization methods can be used outside the blockchain.

• Vaultless Tokenization:
  Vaultless tokenization is commonly used in payment processing. This method involves using secure cryptographic devices with specific algorithms that safely transfer sensitive data into non-sensitive assets. Unlike vault tokenization, vaultless tokens do not require a tokenization vault database for storage.
• Vault Tokenization:
  Vault tokenization is utilised for traditional payment processing and involves a secure vault database tokenization. This database stores both non-sensitive and sensitive data, which can be decrypted by network users using data tables.
• NLP Tokenization:
  NLP tokenization refers to the process of dividing a text into smaller pieces called tokens, which is a fundamental function in natural language processing. There are three categories of NLP tokenization:
  – Subword tokenization,
  – Character tokenization, and
  – Word tokenization.
• Blockchain Tokenization:
  Blockchain tokenization is another type that divides asset ownership into multiple tokens. It is similar to NFTs in that they function as “shares,” but blockchain tokenization also utilises fungible tokens directly tied to an asset’s value. Blockchain tokenization enables decentralised app development, which is also referred to as platform tokenization.
• NFT Tokenization:
  NFT tokenization is currently one of the most popular types of tokenization. It involves non-fungible tokens representing unique digital assets such as digital art, games, and real estate. These assets do not have a predetermined value and can be used to authenticate transactions or prove ownership.
• Governance Tokenization:
  Governance tokenization is a type of tokenization that focuses on voting systems on the blockchain. It allows for a fair and collaborative decision-making process with decentralised protocols, as all stakeholders can vote and debate on-chain.
• Utility Tokenization:
  Utility tokenization involves the creation of utility tokens that provide access to various services within a specific protocol. They do not involve direct investment token creation, but they can improve the system’s economy by providing good platform activity.

How Tokenization is the Future of Card Payments

Tokenization is the future of card payments because it offers a higher level of security than traditional payment methods. With tokenization, the risk of cybercrime is significantly reduced, making it safer for customers to make payments online. Tokenization also offers convenience because customers do not have to enter their payment information every time they make a purchase. With the increasing number of online transactions, tokenization will become the standard method of payment in the future.

To sum up, tokenization is a process of replacing sensitive information with non-sensitive information, referred to as a token. It is important in the modern payment scenario because it reduces the risk of cybercrime. There are two types of tokenization, namely, single-use tokenization and multi-use tokenization. Tokenization is the future of card payments because it offers a higher level of security than traditional payment methods. As more transactions are conducted online, tokenization will become the standard method of payment.