Get To Know All About Tokenization

 

Tokenization is the process of creating tokens as a medium of data, often replacing highly-sensitive data with algorithmically generated numbers and letters called tokens.

 

Unlike cryptocurrencies, the idea of tokenization did not originate from blockchain technology. For a long period of history, physical tokens have been used to represent real money. For instance, casino chips are used to describe money, and banknotes and coins are also used as different forms of tokens.

 

Tokenization in the digital world was first attempted by TrustCommerce in 2001. In looking at a way to protect the sensitive credit card details of its users, the payment solutions issued the first digital tokens (randomized numbers), which were a non-sensitive data equivalent.

 

Before this, online payment services would store the sensitive information of their users in servers. However, these servers were susceptible to breaches from hackers looking to access this information.

 

When a cardholder performed an online transaction, the merchant was referred back to TrustCommerce, which would then process the information on their behalf. This both eliminated the need for merchants to store credit card details and also protected cardholders from hackers.

 

 

Issuing a token on a blockchain magnifies its usefulness exponentially. The blockchain records the issuance and maintains a ledger of every single token movement.

 

Conventional tokenized assets create multiple “tokens” for every user who accesses the file. However, a blockchain creates a permanent, immutable record of the tokens by using a distributed ledger.

 

When a transaction takes place on a blockchain, instead of creating a new representation of the token, the ledger accesses the token stored and updates itself to reflect the spend, thus overcoming the double-spend problem.

 

Source: Coinmarketcap