# What is smart tokenization? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2017-08-01 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: Unlocking the Power of Smart Tokens in Digital Transactions Meta Description: Learn how smart tokens are transforming traditional payment methods by providing secure and flexible digital transactions for banks and customers alike. URL: https://financedigest.com/what-is-smart-tokenizationhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/earth-globemkvzi5bo-1736843635100-compressed.jpg) _**Marten Nelson**, co-founder and VP of Marketing at Token Inc._ ![chart](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/chart-1736843634969-compressed.jpg) Before we get into the ‘smart’ bit, let’s recap. Tokenization is the security process that most recently unlocked the [mobile payments](https://www.financedigest.com/the-future-of-mobile-payments-and-e-wallets.html "The Future of Mobile Payments and E-Wallets") market. All the major ‘OEM Pays’ (Apple Pay, Samsung Pay etc.,) use the [technology to secure the transmission of payment data between device](https://www.financedigest.com/the-medical-device-technologies-market-to-stick-around-based-on-organic-expansion.html "The Medical Device Technologies Market to stick around based on organic expansion") and terminal. The process itself however – of replacing sensitive data with unique identifiers which retain the essential information but don’t compromise security – can, in theory, be applied to any kind of transaction, from bank details, to health records, ID numbers – even to the [idea of money](https://www.financedigest.com/8-best-passive-investing-ideas-which-can-help-you-make-money-in-2022.html "8 Best Passive Investing Ideas Which Can Help You Make Money In 2022") itself. The central idea is this: when tokenized, unlawfully intercepted payment authorization data is rendered valueless because it simply isn’t there; it is replaced by a token. This means the data can, in effect, hide in plain sight. **What is a smart token?** A smart token takes this idea a step further. It’s a regular token on steroids. It transmits the value and all the information needed to authorize the transaction together, in one go, including enhanced counterpart identity, transaction and invoicing data. It consists of three layers: an asset, a [set of rules](https://www.financedigest.com/japans-ruling-party-is-set-for-likely-bruising-in-weekend-election.html "Japan’s ruling party is set for likely bruising in weekend election"), and a state. Let’s break it down. An [asset is the source](https://www.financedigest.com/why-equipment-assets-should-be-the-source-of-your-customer-strategy.html "Why Equipment Assets Should Be The Source of Your Customer Strategy") of value. Think of it as the ‘center’ of the smart token. Typically, it’s a bank account, such as your [current or savings account](https://www.financedigest.com/coffee-current-accounts-and-the-commoditisation-conundrum.html "Coffee, current accounts and the commoditisation conundrum"). Surrounding this asset are a number of rules. These rules, which can be programmed by the issuer, dictate who can [access the asset](https://www.financedigest.com/the-rise-of-fractional-investing-accessing-high-value-assets-with-small-budgets.html "The rise of fractional investing: accessing high-value assets with small budgets"), at what time, for what purpose and under what set of circumstances. Imagine you’re [buying a TV from Amazon](https://www.financedigest.com/exclusive-amazon-to-secure-unconditional-eu-approval-for-8-5-billion-mgm-buy-sources.html "Exclusive-Amazon to secure unconditional EU approval for .5 billion MGM buy – sources"). When you hit ‘buy’, your [bank sends a smart token to Amazon which has the following](https://www.financedigest.com/why-google-is-never-closed-for-maintenance-and-how-banks-can-follow-suit.html "Why Google is never closed for maintenance and how banks can follow suit") rules: a €1000 payment limit and a two-week expiry date. In another transaction, the smart token issued in relation to the same asset (your bank account) could have completely different rules. If you’re buying a series of weekly Pilates classes, the token may have a six-month duration, enabling your gym to regularly draw down on that token as each class takes place. That is the great thing about rules – they are the flexible layer that allow smart tokens to create an almost infinite number of unique and [secure digital](https://www.financedigest.com/understanding-cryptocurrency-wallets-securing-your-digital-assets.html "Understanding Cryptocurrency Wallets: Securing Your Digital Assets") payment types at a fraction of the cost of today’s conventional payments infrastructure. Any existing payment method you can currently imagine – cash, credit card, cheques, and gift cards – can be emulated by a smart token, thanks to the rules. This is the flexibility that opens the door for banks. Finally, a smart token has a state. This is the part of the token which tracks the value of the token according to its rules. After three months of Pilates classes, it’s the state that will record that 50% your payments have been made. The combination of asset, [rules and state combine to provide banks](https://www.financedigest.com/bank-of-england-publishes-rules-for-energy-firms-liquidity-tool.html "Bank of England publishes rules for energy firms’ liquidity tool") with the power to tear up the rulebook and perform transactions faster and at a vastly reduced cost, without relying on third parties to validate the payment. Smart tokenization is at the core of Token’s open banking proposition. Want to get smart? Contact us today. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---