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Encryption vs. tokenization vs. whatever: What you need to know

Phil Smith III Senior Product Manager and Architect, Mainframe and Enterprise, Micro Focus

Terminology in the data protection world is often surprisingly imprecise. "Encryption" is something we all understand, or at least think we do: "A reversible algorithm that uses a key [some secret material] to make data unusable."

But folks also throw around terms such as "tokenization" and "masking" and "obfuscation." Sometimes these refer to specific technologies; sometimes they are used generically, to mean "some form of data protection." For example, people often say things such as, "We [tokenize, encrypt, mask, obfuscate, protect] the data"—without specifying how, and meaning different things at different times.

Even when the terms are used precisely, people often misunderstand the differences between them. And those differences matter. Here's my take on this mess.

Obfuscate and protect

These are generic terms, meaning "The data is hidden somehow." That might mean replacing it with other data through encryption or another method, or simply not displaying it, perhaps showing just ***-**-**** for a US Social Security number.

Actually, when you're not intending to call out a specific technology, these are probably the best terms precisely because of their, well, imprecision.


"Masking" is perhaps the most abused term. Sometimes people use it to mean "we keep the real data hidden" when they are actually just "obfuscating" or "protecting."

But masking can be more specific, referring to dynamic data masking (DDM) or static data masking (SDM). These technologies, conceptually similar, mean changing sensitive information in production data to other, similar values, at specific points in the data flow.

DDM occurs as the data is used:

  • When a data feed is sent from one application to another, less trusted environment
  • When data is displayed—for example, showing only the last four digits of a credit card number on screen in a call center application, so it can be used for account verification

While DDM has its place and is obviously better than nothing, using it as a primary means of data protection tends to give security folks agita, since it means that a database breach is guaranteed to reveal cleartext.

SDM means copying production data (in toto or a subset) and replacing sensitive information with other values. Typically this is done to enable realistic test conditions based on production volume, variability, etc., without risking exposure.

Some SDM tools preserve referential integrity; that is, all occurrences of "Bob" (and only "Bob") might be changed to "Thomas." Others change values without consistency. Sometimes "Bob" becomes "Thomas," and other times it becomes "Frank"; perhaps both "Bob" and "Thomas" become "Frank," consistently or otherwise.

In either case, the resulting data can be used without regard for security, since it no longer contains actual sensitive values.


People are generally conceptually familiar with encryption, which combines a mathematical algorithm and some other, secret information (an encryption key) to transform data in a way that is essentially impossible to reverse without the appropriate key.

Traditionally, this meant that the data was converted to an unreadable binary string, usually longer than the input. If a whole files system, database, or dataset was encrypted, and then decrypted, either manually or automatically (transparently), on use, this change usually had no significant impact.

On the other hand, when adding field-level encryption to existing applications and data stores, this obviously had significant impact: Program variables, database column definitions, and file layouts all must be changed, and disk space usage increases, sometimes quite dramatically.

Format-preserving encryption, pioneered by Voltage Security in the late 2000s, solves this last problem, producing ciphertext that maintains the input size and alphabet.


"Tokenization" as a specific term comes from the Payment Card Industry Data Security Standard (PCI DSS), a well-established standard for protecting payments-related data.

When PCI DSS v1.0 was released in 2008, it required merchants to "render [credit card Primary Account Numbers, or PANs], at minimum, unreadable anywhere it is stored … [using] strong one-way hash functions (hashed indexes), truncation, index tokens and pads … [or] strong cryptography."

These choices obviously represent different use cases: Hashes are great for anonymizing data, but their irreversibility makes them somewhat less than useful if the cleartext will ever be needed again.

Truncation means storing only part of the data. Again, this only works if the full cleartext is never required.

Index tokens and pads are what people usually call tokenization: replacing the value with a randomly generated value. More current versions of PCI DSS describe this approach in more detail:

An index token is a cryptographic token that replaces the PAN based on a given index for an unpredictable value. A one-time pad is a system in which a randomly generated private key is used only once to encrypt a message that is then decrypted using a matching one-time pad and key.

How tokens and encryption relate

Read this statement carefully, because doing so reveals what any cryptographer will tell you: Tokenization is a form of encryption.

Index tokens are a one-time pad: that's the "unpredictable value." Since PCI DSS is focused on credit card numbers, this "index" can be thought of as an "offset": Take a given card number, add some value to it ("wrapping around" if it exceeds the maximum possible), and there's your token.

Typically this is implemented using a database; a random number generator creates a value that's in the desired range representing the PAN, and that value is stored in the database.

What is critical to realize is that in this scenario, the database is an encryption key. Just because it is not a 128-bit, 256-bit, or some other defined size does not mean it is not an encryption key.

Given an algorithm and some secret information (in this case, the database), a cleartext PAN can be consistently converted to a token and vice versa. That is precisely the definition of encryption.

Encryption vs. tokenization: Making the choice

If tokenization is encryption, why do people distinguish between them? PCI DSS auditors (qualified security assessors or QSAs) often prefer tokenization over encryption, citing an alleged difference in that there is "no mathematical relationship" between a randomly generated token and its cleartext.

As explained previously, this is flawed reasoning. That relationship exists, in the form of the one-time pad represented by the tokenization database or metadata table.

In addition, the first format-preserving data protection methods available in the early days of PCI DSS were database-backed tokenization schemes. This first-mover advantage has probably further encouraged QSAs to prefer tokenization.

Local operation vs. remote

But there is still a big difference between most tokenization and encryption solutions—whether the operations are performed on the endpoint or not.

This matters because of accessibility of the key material (whether an AES key or a tokenization table of any sort). With local operation, that key material must be present on the endpoint. If operations are performed remotely (typically via web services such as REST or SOAP), that key material is more secure, since it remains on the remote server.

Of course this does not mean remote operation is invulnerable; a flawed implementation could allow attackers to issue requests to convert protected data to cleartext, and of course they can attack the server directly.

But a flood of remote requests from an intruder will typically be visible on several levels (network traffic, server logs, etc.). In addition, such servers are usually more tightly controlled than endpoints, typically being administered by network or security staff, with quick attention given to known security vulnerabilities. They are also generally single-purpose, further reducing the odds of compromise.

Encryption is frequently offered both locally and as a web service. In the former case, the key material is downloaded from a server and used for local operations. Local operation is robust and fast, since it eliminates network latency once that key is initially downloaded.

On the other hand, most tokenization is offered only via web services. For database-backed tokenization, the reason is obvious: Multiple endpoints need to tokenize and detokenize, so they need a single point of control that owns the token database. That database also needs care and feeding, as well as (hopefully) some sort of real-time replication, to avoid lost tokens should a hardware failure occur.

Understanding scalability issues

Database tokenization also suffers from scaling problems. The tokenization sequence generally flows:

  1. Cleartext value received.
  2. Database checked for existing token for that value; if found, token returned.
  3. If not found, generate new token, search database to make sure not a collision (same token representing two cleartext values).
  4. If collision found, repeat previous step.

As the number of issued tokens increases, collisions occur more frequently. When tokenizing values such as PANs, where the bulk of the possible values exist, this becomes a serious problem.

Dealing with synchronization problems

Worse, however, are synchronization issues. For scalability as well as reliability, tokenization servers must be replicated, introducing two new problems. First, the same cleartext PAN could arrive at two different servers simultaneously, resulting in two different tokens being generated.

While this would likely eventually be resolved, the inverse is far more pernicious: Two different cleartext PANs can hit two servers and produce the same token. These issues can be avoided through real-time database replication, but that adds further complexity and latency.

Non-database-backed tokenization approaches such as Voltage secure stateless tokenization (SST) allow both remote and local operation. Given a copy of the tokenization metadata, an endpoint can perform tokenization while guaranteeing consistency with other machines and avoiding real-time replication requirements.

This approach also avoids the scaling problems endemic to database-backed systems, including extended token generation times as the number of tokens grows and the expense and delays of real-time database replication (or, worse, consistency issues if such replication is not implemented).

Local machines more at risk

Since tokenization is encryption, local tokenization and local encryption are identical from a security standpoint. In both cases, however, there is sufficient information on the local machine to allow serious data theft should that machine be compromised.

Thus, any local data protection on an endpoint must ensure that this information—encryption keys and/or tokenization metadata—is sufficiently protected that it not become a primary attack surface. Ironically, because tokenization metadata is larger than an AES key, it "feels" like it's more vulnerable. Yet because they are so much smaller, exfiltration of AES keys would be far easier!

The reason QSAs dislike endpoint data protection should be clear: Since most such machines are not as carefully controlled as single-purpose servers, there is higher risk of compromise, either through local, seemingly unrelated configuration changes, or because some other application or service running on that endpoint is vulnerable.

When considering operation in the cloud, this becomes even more significant, as vulnerabilities like SPECTRE/MELTDOWN are impossible for an administrator to protect against. Attacks can come from unknown and unrelated code that happens to be running on the same hardware.

Many scenarios make local operation desirable, since it offers higher performance and more predictable response times, avoiding network latency/congestion issues. PCI DSS QSAs are less likely to sign off on local protection, but other use cases can benefit. This may require hardening the endpoint, perhaps even requiring removal of other services, to satisfy regulatory security requirements.

Understanding the differences is key 

Data protection terminology can be precise, and communication is clearest when it is used this way. Understanding the differences among technologies is critical.

For regulatory compliance, it is important to understand that the most important difference is often between local and remote operation, rather than between encryption and tokenization.

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