What is OTP? [Key to Online Security]

When you try to log in to a website or app, you will often see this:

A screen asking for a code pops up. That code is known as an OTP or “one-time password.” 

OTPs work as an added layer of security to verify the identity of users. According to statistics, 81% of data breaches are due to weak passwords. This is why more companies are using OTPs. 

Continue reading to take a closer look at what OTPs are and their importance to online security.

Understanding What OTPs Are

An OTP is a unique password valid for a single log-in session or transaction—thus the term "one-time." Usually, users will get it through an SMS, phone call, or authenticator app. 

To further understand OTPs, here are some examples:

1. SMS-based OTP

To sign in or proceed with a transaction, a user must enter the authentication code on the SMS that they will receive. Most people use this type of OTP since it is more convenient.

2. Hardware OTP Tokens

Hardware OTP tokens are tiny devices that generate a new password whenever someone uses them. This is one of the most secure methods of generating OTPs.

3. Software OTP Tokens

This token provides a two-factor authentication system that generates an OTP. The code comes from a shared secret key installed on smartphones and computers.

How OTPs Work

Apps and sites that involve sensitive data use OTP as part of their security. Services like online banking and e-commerce enforce OTPs. 

Authenticating access with OTP is proven to be more secure since the process involves secret keys, time-based components, and counters.

To better grasp how OTP works, read this step-by-step explanation:

Methods to Generate OTPs

Servers create OTPs based on pseudo-randomness, meaning true randomness algorithms. 

All the OTPs generated by these algorithms are unique and secure, preventing attackers from predicting the code.

The algorithms also often use hash functions to derive the OTP value. This makes it difficult for attackers to get the original data used for the hash. 

Without these measures, attackers can predict future OTPs by observing the patterns of the previous ones.

Below are some of the known methods used to generate OTPs:

• COTP (Challenge-Response One-Time Password)

COTP is based on a mathematical algorithm on the server's challenges and a secret key. It is the usual authentication method used when accessing remote systems.

• TOTP (Time-Based One-Time Password)

TOTP is an OTP algorithm that generates passwords based on the current time. This is common in two-factor authentication (2FA), providing extra security besides a user's actual password. OTPs in this method are valid for a limited time only.

• HOTP (HMAC-Based One-Time Password)

HOTP is an OTP algorithm based on a counter and a secret key. It generates a password based on the previous password.

TOTP and HOTP are comparable in many ways. Check out this video to learn the benefits of using each type:

Why Should You Use OTPs? 

More and more organizations now prefer using OTPs due to how safe they are. 

However, whether you’re an individual or corporation that is still not convinced of the effectiveness of OTPs, below are reasons why you should consider them on your next online transaction:

1. OTPs are Unique and Time-Sensitive

An OTP code is only usable once. It expires after a specific time, making it difficult for an attacker to intercept.

2. Users Do Not Need to Remember

Almost 50% of people in the US manage their passwords with their memories alone. However, with OTPs, you do not need to remember every single code since a new one is generated for every use.  

You simply have to wait for your OTP via text, email, or authenticator app. Many users enjoy this passwordless authentication method.

3. OTPs are Difficult to Predict

Since OTPs come from complex algorithms, attackers won't be able to predict their sequence. The chances of an attacker’s success in OTP guessing are close to zero.

Without OTPs, you can easily be subject to online threats as soon as a hacker gets a hold of your actual password. OTPs secure your accounts, transactions, and other data through its unpredictability. 

Wrap Up

OTP is an effective security layer against unauthorized access and data breaches. 

By adding another authentication, any user can enjoy better security. An OTP ensures that only authorized users can access accounts and complete transactions. 

However, keep in mind that OTPs only offer partial protection. As a user, it is still your responsibility to be cautious with your accounts and passwords to avoid online attacks.