What You Need to Know about Security Tokens

A security token is viewed as a portable device that is able to verify a person’s identity electronically by storing some personal information. The owner normally connects a token to a system so as to provide access to a network service. There are also the so-called Security Token Services (STS) that are responsible for issuing security tokens that can authenticate a person’s identity.

Security tokens simply put

A security token represents an investment contract into an underlying investment asset, like stocks, funds, bonds, etc., and provides the ownership information of an investment product that is recorded on a blockchain. Once you invest in some kind of traditional stocks, the ownership data is recorded in a document and then issued as a digital certificate (a PDF). For Security Token Offering (STO), though, the process is recorded on a blockchain and is issued as a token.

Security tokens are represented in many different ways. There are hardware tokens that include chips, USB tokens that are plugged into USB ports, and wireless Bluetooth tokens or programmable electronic key fobs, which can activate devices from a distance (e.g. to get access to a car or an apartment building).

Single sign-on services generally utilize security tokens in order to smoothly log users into third-party websites. When it comes to disconnected tokens, it is worth noting that they are not linked to the computer or network in any way. Instead, the user is supposed to enter the information from the token into the system manually. Connected tokens, on the contrary, operate electronically and can automatically communicate information to the network when they are connected.

Example of a security token

It is possible to use a security token to gain access to a sensitive network system such as a bank account with a view to provide an extra security level. In this case, the security token is complementary to a password, and is needed to verify the identity of an account owner.
What is more, security tokens are capable of storing data for the purpose of authenticating owners’ identities. Some of them can store cryptographic keys — a system that is used in cryptocurrency services such as Bitcoin. These keys, though, must be kept secret.

Some people prefer to apply time-sensitive passwords that can be arranged between the token and the network and reset at steady intervals. Others opt for biometric authentication (fingerprint data) to make sure that only the owner of a security token has access to the protected information.

Do security tokens have any drawbacks?

Just like any other system, security tokens are not perfect. If a token is lost or stolen, or if it is not at the owner’s disposal, it cannot be used to get access to a service. Luckily, there are a lot of ways of tackling these issues. For example, the owner can take the necessary measures to prevent any loss or theft. There exist numerous locks and alarms that require two-factor authentication, thus making the token useless and unattainable to a thief. This kind of authentication involves an item in the owner’s possession (e.g. a bank card) and some personal information (like a PIN) in order to access this token.

Security tokens are able to bridge the gap between the traditional finance sector and blockchain, and make the industry move towards building blockchain projects that will benefit everyone.