This article is a community contribution. The author is Chike Okonkwo, co-founder of Gamic HQ, a Web3 gaming social media protocol.
The views expressed in this article are those of the contributor/author and do not necessarily reflect the views of Binance Academy.
Abstract
Data tokenization is the process of converting sensitive data, such as credit card information, into tokens that can be transmitted securely on the blockchain without leakage Raw data.
Data tokenization can enhance data security, privacy and compliance while preventing unauthorized access and misuse.
Data tokenization requires careful consideration, rigorous implementation, and the ability to manage its pros and cons.
Tokens are non-mineable digital units that exist as registered entries in the blockchain. Tokens come in many different forms and have many use cases. For example, they can be used as currency or encoded data.
Tokens are typically issued using blockchains such as the Ethereum blockchain and BNB chain. Common token standards include ERC-20, ERC-721, ERC-1155 and BEP-20. Tokens are transferable units of value issued on top of a blockchain, but they are not cryptocurrencies such as Bitcoin or Ethereum that are native to the underlying blockchain.
In so-called tokenization of real-world assets (RWA), some tokens may be redeemable for off-chain assets, e.g. Gold and real estate.
Data tokenization is the process of converting sensitive data such as credit card information and health data into tokens that can be used in Securely transmit, store and process on the blockchain without leaking the original data.
These tokens are typically unique, immutable and can be verified on the blockchain for enhanced data security , privacy and compliance. For example, a credit card number can be tokenized into a random string of numbers, which can be used for payment verification without revealing the actual card number.
Data tokenization can also be applied to social media accounts. Users can choose to tokenize their online accounts for seamless transfer from one social media platform to another while maintaining ownership of their personal data.
Data tokenization is not a new concept recently. It has been commonly used in the financial sector to protect payment information, but it has the potential to be used in more industries.
Tokenization and encryption are both ways to protect data. But they work on different principles and have different uses.
Encryption is the conversion of plain text data into an unreadable format (ciphertext) that can only be decrypted using a key. It is the mathematical process of scrambling data so that it cannot be read by anyone without the key. Encryption can be used in a variety of scenarios, including secure communications, data storage, identity authentication, digital signatures and regulatory compliance.
Tokenization, on the other hand, uses a non-sensitive, unique identifier called a "token" The process of replacing sensitive data. It does not rely on keys to protect data. For example, a credit card number can be replaced with a token that is not related to the original number but can still be used to process transactions.
Tokenization is often used where there is a strong need to ensure data security and comply with regulatory standards, such as payment processing, healthcare and Management of Personally Identifiable Information.
Suppose a user wants to Switch to another social media platform. On traditional Web 2.0 social media platforms, users who switch platforms must set up a new account and enter all personal data from scratch. Post history and relationships on the old platform may also not transfer to the new platform.
With data tokenization, users can link their existing digital identities to the new platform, automatically transferring their personal data . To do this, users need to have a digital wallet like Metamask, whose wallet address represents their on-chain identity.
The user must then associate the wallet with the new social media platform. Because Metamask contains users’ digital identities and data on the blockchain, personal history, relationships, and assets will automatically sync to the new platform.
This means that any tokens, NFTs and past transaction records accumulated by users on previous platforms will not be lost. This gives users complete control over which platform they want to migrate to, without being tied to a specific platform.
Data tokenization can enhance data security. By replacing sensitive data with tokens, data tokenization reduces the risk of data breaches, identity theft, fraud and other cyberattacks. Tokens are linked to the original data through a secure mapping system, so even if the tokens are stolen or leaked, the original data remains protected.
Many industries are subject to strict data protection regulations. Tokenization can help organizations meet these requirements by protecting sensitive information and providing solutions that reduce compliance risks. Since tokenized data is considered insensitive, it can also reduce the complexity of security audits and simplify data management.
Tokenization Access to tokens can be provided without revealing sensitive information, enabling secure data sharing across departments, suppliers and partners. Tokenization can effectively scale to meet the growing needs of organizations while reducing the cost of implementing data security measures.
Tokenizing data may affect the quality and accuracy of the data, as some information may be lost or distorted during the tokenization process . For example, if a user's location is converted into a token, it could have a negative impact on how they view relevant content based on their location.
When data is tokenized, different systems that use or process the data may have difficulty working together. For example, tokenizing a user’s email address may prevent them from receiving notifications from other platforms or services. Tokenizing a user's phone number could prevent them from making or receiving calls or text messages, depending on the platform they use.
Tokenizing data may also raise legal and ethical disputes about who owns and controls the data and how it is used and shared. For example, tokenizing a user’s personal information may also change how users provide consent to how their data is collected and used. Tokenizing a user’s social media posts may violate their free speech or intellectual property rights.
If the tokenization system fails, recovering data can be more complicated. Organizations must recover both the tokenized data and the original sensitive data stored in the token vault, a process that can be quite complex.
Centralized Social Media Platforms Every Day A large amount of user data is collected to create targeted advertising, recommended content and personalized user experience. This information is often stored in centralized databases, which may be sold without the user's permission, or may be hacked and leaked.
With data tokenization, users can tokenize their social media data and, if they wish, sell it to Advertisers or research organizations. Users can control who can view or share their content. They can also create custom rules for their profile and content.
For example, they can only allow verified users to view their content, or set a minimum token for users who want to interact with them balance. This gives users full control over their social graph, content and monetization channels such as tips and subscriptions.
Data tokenization has been adopted by many industries, including healthcare, finance, media and social networks. As the need for data security and regulatory compliance grows, data tokenization is likely to continue to grow in popularity.
To effectively implement this method, it must be carefully considered and implemented. The data tokenization process should be clear and conducted in a responsible manner, respecting the rights and expectations of users while complying with all relevant laws and regulations.
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