Many investors are drawn to cryptocurrency markets because they aren’t controlled or manipulated by traditional financial institutions. Individuals can trade large amounts of digital assets without having to worry about their personal information being compromised. However, if a bank was hacked, it could mean that your personal data is immediately compromised.
A data breach can cause reputational damage that is hard to recover from in the financial services industry. Clients expect their finances to be secure and private, but this isn’t always possible, thanks to cybercriminals. Many of these hackers are also increasingly targeting financial institutions. This is also a massive issue for Ecommerce, as online fraud resulted in $41 billion in losses in 2022 and the total cost of Ecommerce fraud is expected to exceed $48 billion globally this year.
We know that tokenization has been critical to the cybersecurity sector for decades. Asset tokenization might be a “cryptocurrency term” now, but it has existed in the financial services industry since the 1970s. We discuss tokenization and how blockchain technology can play a role in data security and data privacy.
Dire concerns with data security
There’s no way to deny it: the world has a massive cybersecurity problem. Some of the most powerful companies in the world have been hacked. This often leads to situations where the personal information of millions of people—or even hundreds of millions of people—is compromised. Equifax, one of the largest credit reporting agencies in the United States, suffered from a 2017 data breach that affected over half the entire country.
For some small businesses, one small data breach can wipe the company out completely. The average data breach currently costs somewhere around $4.5 million dollars. Also, some of the most powerful organizations in the world have suffered severe reputational damage thanks to a hack or data breach of some kind. Facebook is a social media platform used by billions of people, but they cannot even prevent large-scale data breaches.
Data is widely considered to be “the new gold,” or the “new oil.” The concept is simple: data is an asset that helps make an entire organization valuable rather than just part of a strategic strategy. Tokenization is widely used, but the rise of blockchain technology (internal link) could mean that more organizations think about blockchain-based data security solutions.
Credit card tokenization is different than blockchain tokenization
When businesses talk about a tokenized transaction, they usually aren’t referring to blockchain technology. This is because these kinds of transactions have existed for years, and they are currently used to protect consumer privacy. If you purchase a product at a retail store, for example, there’s a good chance that the retail store replaces your primary account number, or PAN, with a unique numeric token to replace it. Tokenization is used all the time with debit or credit card purchases.
The idea is simple here. Since your personal information is valuable, and the weak link is the merchant system, the merchant system only stores the token. If the system is compromised, then your information is still safe because it is located elsewhere. If hackers can penetrate that system, they will have access to a meaningless jumble of numbers and letters.
We want to make a simple point here that credit card tokenization is MUCH different from the concept of tokenization on the blockchain. While companies might be used to tokenizing credit card numbers for consumer privacy, tokenization on the blockchain is much different. Credit card tokenization is used so that data is useless if stolen, while asset tokenization ensures that an asset is tradeable. Security tokenization involves digital smart contracts for fractions of an asset that already has value, like a commodity or real estate property.
The advantages that blockchain brings to fintech
Tokenization is widely used, but the rise of blockchain technology could mean that more organizations think about blockchain-based data security solutions. There are more cybersecurity challenges than ever before. Even if consumers are protected thanks to their tokenized transaction, countless hackers and cybercriminals are still quite successful when it comes to obtaining data.
Many hackers have turned to ransomware attacks. The 2017 WannaCry attack was a massive ransomware attack that ended up affecting businesses and organizations all over the globe.
Blockchain technology (internal link) is much more challenging to hack, and businesses could end up turning to asset tokenization to protect themselves. Another aspect to consider when it comes to data security is that asset tokenization on the blockchain is immutable.
This is critical for reducing fraud since the blockchain cannot be tampered with. Where a company could have altered its records to deceive investors or partners before, the blockchain would be transparent and immutable.
For the financial services industry, security tokenization also means that companies can issue tokens that represent real-world assets. This can provide much more liquidity to the financial services industry as a whole, as well, while also reducing costs. Blockchain can also reduce the risk of error, meaning that it can also help with regulatory compliance.
The bottom line for data security
The importance of data security cannot be understated or underestimated. Countries and institutions depend on data security for infrastructure reasons, national security reasons, and because they collect personal information on millions of people all over the world. Blockchain can help to decentralize this data and keep it secure while also offering a technology that advocates for transparency.
Asset tokenization can also help democratize investments, and security tokenization is also critical for providing liquidity to the cryptocurrency markets. However, tokenization technology has always remained important to the world’s data security infrastructure. Blockchain also offers more security and efficiency than ever before, which can help protect against threats from hackers and cybercriminals.
About the Author
Michael Hearne
About Decentral Publishing
Decentral Publishing is dedicated to producing content through our blog, eBooks, and docu-series to help our readers deepen their knowledge of cryptocurrency and related topics. Do you have a fresh perspective or any other topics worth discussing? Keep the conversation going with us online at: Facebook, Twitter, Instagram, and LinkedIn.
