Difference between Tokenization and Encryption

Today, every firm, large or small, collects, stores, receives or transmits data to some extent. This data must be protected regardless of which device, technology, or method is used to manage, store, or gather it. This is when data security comes into play. We will limit our discussion to file and database encryption methods, even though data security is a term that embraces all aspects of information security.

By hiding critical information's contents through encryption or tokenization, these technologies provide a last line of defence. Let's look at the two terms for data security in more detail.


Tokenization is a mechanism for replacing data. The tokenized data acts as a stand-in for all transactional tasks.

  • The payment gateway provider will store the sensitive information in its token vault and generate a new number string that can be used for card-based transactions.

  • Once the token is submitted to the acquirer (for example, Clearent), this number string can only be swapped for the actual credit card number, at which point the transaction can be authorized.

  • Organizations are safe from compromising cardholder data because they never see or store any valuable data. The token cannot be converted to actual data using any code, passkey, or algorithm. The bank or processor can only replace it with the original credit card information.

  • A personalized transit pass that substitutes for a cash fare and is useless to anybody else due to its unique qualities, such as an embedded photo ID, is an example of a token in the real world. A transit pass is a token that represents the money held in the vault of the transit operator.

Tokenization enables merchants to provide customer-friendly card storage and recurring payment processing services, a good solution for businesses that rely on memberships or subscriptions. Tokenization is also valuable for online merchants who want to save client information for future purchases.


Encryption means converting plain text into ciphertext using an algorithm to ensure that sensitive information stays unreadable by unauthorized readers.

  • Encrypted data typically appears as a long string of random letters and numbers.

  • Once the information has been encrypted, the only way to decrypt it and make it readable again is to use the correct encryption key. Encryption is necessary for the secure transmission and storage of sensitive data.

  • Stream ciphers encrypt data one bit or byte at a time, making them ideal for real-time communications. Before encrypting data, block ciphers divide it into larger chunks, usually 64 bits.

Difference between Tokenization and Encryption

The following table highlights the major differences between Tokenization and Encryption −

Tokenization replaces sensitive data with a token, a randomly generated code.While encryption uses an encryption algorithm and key to encrypt sensitive data and turn it into unreadable code.
Data that is structured, including such credit card or social security numbers can be supported using tokenizationBoth unstructured data, such as whole files and emails, and structured data, such as credit card numbers, can be supported
Sensitive information is never transferred outside of the organization.Sensitive information is encrypted before leaving the organization. The PCI Security Standards Council goes through a rigorous vetting procedure for PCI-validated point-to-point encryption (P2PE).
Data exchange is difficult because it necessitates direct access to a token vault that maps token value.Data can be sent to a third-party or receiver which has access to the encryption key.
Passing tokens to downstream applications reduce PCI scope, one of the most common use cases.One of the primary use cases is to preserve the confidentiality of data-at-rest even if the storage medium is hacked or deleted. Because attackers do not know the keys, they cannot see the actual data.

Updated on: 16-Feb-2022


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