What Is Tokenization and How Does It Work?

Tokenization has been rising in popularity in the most recent times.

22:13 12 April 2021

Tokenization has quickly gained recognition in many countries around the world. It can benefit both the sellers and consumers, especially during the hard times where everyone should be compliant with the physical distancing protocols. 

 

What exactly is tokenization? 

 

It can be defined as the protection of specific data by concealing it with the newly generated number. This unique number that protects the actual data is called a token. That's the reason why tokenization has been slated as a more secure option to prevent credit card fraud and scams. 

The primary token function is to grant a site to store the user information, including the payment with its unique series of numbers, rather than the sensitive information. 

How does it work? 

 

The official entities create the tokens that work as the TSP - Token Service Providers. 

 

These tokens will then be distributed to the e-commerce platforms or particular payment platforms to use them in the transactions. The tokens will replace the customer's actual data. 

 

In this case, the user will fill up the information in the virtual wallet. Let's say a google user wants to purchase an app from Play Store. They will need to use Google Pay as the virtual wallet. In it, they need to enter the card details. 

 

After receiving the customer's information, Google Pay will request verification of the data to the bank. 

 

Verified data will then be translated into a token. The token will be sent to the user's device. If the user is using their smartphone, then they will receive the unique number. 

 

Every time the Google User makes a payment, the token will authorize the action without sharing the user's actual personal information. In other words, you can keep your credit card details safe with the network tokenization. 

 

Converting Actual Data to a Token

 

It is easy to comprehend the process of data conversion to the token. Let's put ourselves in the customer's shoes.

 

You are purchasing a product from the e-commerce store. 

 

Then you will use your credit card to finish the transaction. 

 

The token system will receive your credit card information. 

 

Then the system will generate the random numbers sequence to mask the actual credit card number.

 

Then the system will send the 16 numbers sequence to the POS machine or e-commerce site. 

 

So, instead of receiving your credit card number, these sites will receive those numbers. 

 

Hackers who penetrate the site won't see the actual credit card information since the token hides it. 

Tokenization backed with Blockchain

 

The blockchain backs the information conversion of the asset or value. The token will represent the terms and authorization. 

 

In the previous point, we mentioned the digital wallet in Google Play Store. That is one of the examples of tangible assets. Tokens can also represent intangible assets like properties, vehicles, lands, etc. Or, tokens can also represent the license, rights, or certification. 

 

Tokenization can accommodate the values of digital products through the blockchain. With this solution, all users can transact the assets safely and privately, without the complex intervention from third-party organizations. 

 

The relevance with software engineering

 

Many software engineering companies have been offering tokenization solutions backed by blockchain. INC4 is one of the tops recommended companies that can help you develop blockchain tech to improve your business productivity. 

 

INC4 can provide the digital finance processing solution through regulation-compliant tokenization. With their services, you will be able to attain the vast advantages of token sales. Their services revolve around smart contracts, Defi, mining software, dApps, wallets, and other digital solutions. 

 

The advantages of tokenization

 

This system comes up with amazing perks that will convince you to adopt it for your business or project. Here are the advantages of tokenization switch INC4. 

 

Available around the clock

 

Tokens which represent particular values are tradable 24/7. Even when you are sleeping, you can procure sales in your business no matter where you are. 

 

It can be hard to trade around the clock in the physical store since your operational hours are limited. Meanwhile, there is no time limit for transacting the tokens. 

 

Enable fractional investment

 

The individual tokens can represent the fractions of the total values of tangible and intangible assets. So, one does not need to own the whole asset and spend significant capital to have it. 

 

The tokens can be distributed to the public market, allowing individuals and groups to invest in smaller numbers. 

 

The safety perk

 

The trading should be compliant with the regulations. You can rest assured to let INC4 handle the tokenization since its services come compliant with all security regulations. 

 

Save money

 

The INC4 offers businesses and companies to automate the process with tokenization. It will contribute to the effectiveness of the system, which will reduce operational costs. 

 

Some smart contract functions can benefit your business, such as liquidation, vesting, dividends, copyrights, etc. All of them can be formed into tokens. 

 

It will automate the overall administrative processes, providing your business with seamless movement. 

 

Speedy transaction

 

This solution increases the speed of selling and trading. There is no need to wait for a long time until the corresponding workload is finished. 

 

The decentralized transfers

 

It works peer-to-peer. There is no middle party that intervenes in the transaction. There will be no brokers or banks which take part. Both you and your recipient can save time and energy. 

 

Because of the absence of a third party, you don't need to spend more on fees. 

 

It also eliminates the long delays of transactions because of the country's borders. 

 

Verdict

 

With the tokenization, the ownership can move to another party through the blockchain protocol. Ones will need to prepare the rights to an asset. With such benefits, it does not mean that this solution does not come with a takeaway. The legal issues might be the biggest challenge in tokenizing the assets. Reach out to INC4 now to help you out with the tokenization.