What is an OTP? Examples and cyber risks

Kfir Yeshayahu

November 10, 2022

  • # Fraud Prevention
  • # Account Protection
  • # Biometric Security

You can’t afford a lax approach to digital security. As cybercriminals innovate, your defenses should, too. 

Traditional digital security measures fall short in combating sophisticated cyber threats. A glaring example is one-time passcodes (OTPs).

Although OTPs might seem like a robust security measure, they can actually heighten your vulnerability to cyber attacks. In cybersecurity, a system is only as strong as its weakest link, and OTPs are so easy to bypass that using one is like leaving the front door open for cybercriminals and hackers. 

Here’s everything you need to know about what an OTP is and what the better options are.

What is an OTP?

A one-time password (OTP) is a unique, temporary passcode used in two-factor authentication (2FA) login processes to enhance password security. You receive and input the code so the system knows it’s you logging in. It's typically a time-based one-time password (TOTP) or an HMAC-based one-time password (HOTP), which rely on algorithms to create unpredictable, secure codes.

In theory, OTPs keep your accounts safe. But these codes are easy for cybercriminals to steal and use to access your accounts, and they open you up to potential account takeover attacks. On top of that, an OTP is only one layer of security — and you need many.

How does a one-time passcode work?

An OTP, also known as a dynamic password or one-time PIN, is a unique authentication code valid for only one login session or transaction. Unlike static passwords, OTPs change every time you log in. When you try to input your username and password, the system — often via authenticator apps like Google Authenticator or Microsoft Authenticator — sends you a code via email or text. Then, you have to input that code to access your account. 

These codes add a layer of security, ensuring that only the person with the correct mobile device or security token can access the account. OTPs might show up every time you log into an account, or they could appear only when the system thinks you could be an imposter. 

Each code could be a HOTP or TOTP:

  • TOTP: Valid for a brief period, usually 30 seconds, and relies on time-synchronized tokens.

  • HOTP: Employs a hash function algorithm to generate a new code for each authentication attempt, offering enhanced security.

HOTP’s unique algorithm is more common in environments where timely access isn't crucial but security is paramount. It works best in situations that involve a physical token, like using a key fob to enter a room. On the other hand, TOTP's time sensitivity makes it ideal for real-time transactions, such as online banking or temporary access control.

Despite their strengths, both methods have limitations. HOTP can be vulnerable if you lose the physical token, while TOTP requires precise time synchronization. 

One-time password examples

You might find OTP codes when using the following operations and platforms:

  • Banking transactions: Each financial operation uniquely authenticates using OTPs for heightened security.

  • Online services: Social media and email platforms often employ OTPs for secure logins, particularly from new devices.

  • E-commerce transactions: For secure online purchases, OTPs ensure that only the legitimate cardholder completes the transaction.

  • Healthcare portals: Patient portals use OTPs for secure access to sensitive medical records, ensuring privacy and compliance with healthcare regulations.

  • Remote work access: OTPs secure remote login to corporate networks, which is crucial for keeping sensitive data safe in work-from-home arrangements.

  • Government services: Many government portals use OTPs to authenticate citizens accessing confidential services.

  • Educational platforms: Universities and online learning platforms use OTPs to protect student accounts and academic records.

Is a one-time password safe?

OTPs are a standard security measure, but their effectiveness is questionable. While OTPs add some protection, they're not foolproof. Their safety largely depends on the transmission method and how you manage them.

For instance, SMS OTPs are vulnerable to interception or SIM swap scams, which give scammers access to your phone number and therefore your OTP. And security is compromised if you share OTPs carelessly or fall victim to a phishing scam. Combining OTPs with other security measures and educating yourself on safe practices is crucial for protecting your digital identity and sensitive data. That’s where multi-factor authentication, or MFA, comes in.

Why do you need MFA?

All SMS-based forms of authentication provide opportunities for scammers to interact directly with you. This opens the door for social engineering and phishing attacks, which compromise your digital security. 

Here’s what could happen: Cyber criminals send out SMS phishing, also known as smishing, messages to mobile numbers. They usually send fraudulent login links or ask you to send them the OTP from your authenticator app, and from there, they can enter your accounts, steal your money, and hold your sensitive data for ransom. This very low-skill hacking method has compromised many businesses and individuals, resulting in significant financial losses and data breaches.

With MFA, this scenario is way less likely to happen. Even if you do click the link or give a stranger your OTP, they’ll still need to get through another layer of security to access your accounts, which will be much harder to crack. 

How MFA falls short

Not all authentication methods are created equal. 

Even if you opt for strong login methods, like biometric authentication, you might end up setting backup options that are weaker than your original, like inputting a PIN when biometrics are unavailable. By exploiting the weaker backup authentication options, cybercriminals can simply override your strong MFA and breach your accounts.

That’s why it’s crucial to know which authentication methods to use and how. If you’re ever unsure, partner with a reliable digital security provider like IronVest that does the work for you. IronVest’s security systems secure your accounts with biometrics, like your fingerprint or face — which cybercriminals can’t replicate.

How to improve account security

In the face of evolving online threats, safeguarding your data and accounts requires a proactive and multi-faceted approach. Here’s how to stay alert and feel confident about your digital security:

1. Learn about digital security best practices

You can’t stay safe if you don’t know what the threats are. Follow the news and stay up-to-date with common security problems and phishing strategies, as well as the best practices that can prevent them. Learn about password hygiene, how to recognize a scam, and how to update your systems and apps. Prioritizing these practices can significantly reduce the risk of cyber attacks and compromised account access.

2. Protect your SMS-based authentication

SMS-based authentication methods, including text message OTPs, pose a high phishing risk because you usually don’t think twice about a text — something known as social engineering. This can also involve replay attacks, which happen when a hacker intercepts your OTP and changes it so they can hack you. 

You don’t need to completely eliminate all SMS-based options. With IronVest, you can protect your 2FA SMS with biometrics. You’ll get a virtual number that masks your real one so only you can access your 2FA credentials (and therefore your accounts).

3. Implement biometric authentication

Biometric authentication is the backbone of secure account access. Unlike traditional methods, biometric systems — such as facial recognition or fingerprint scanning — provide a unique layer of security. They use your unique physical characteristics to confirm your identity and let you into your accounts. Biometric authentication ensures higher security, and with IronVest, it’s easy to implement.

Discover the power of IronVest's biometric 2FA passcode protection

Whether you’re running a business or protecting your personal data, digital security should never fall by the wayside. IronVest can help.

IronVest's 2FA passcode protection blends password security with biometric authentication. This advanced security is more robust than traditional passwords or OTPs, leveraging unique technology for a secure, user-friendly experience.

With IronVest, you’ll enjoy stronger account safety through difficult-to-replicate biometrics and a streamlined login process, balancing strong security and ease of use. Experience this advanced protection by downloading the IronVest app to take your digital security to the next level.

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