One-Time Password (OTP) - Enhancing Digital Security for Modern Authentication

Published on: July 17, 2023
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Table of Contents:

What is a One-Time Password?

A One-Time Password (OTP) is a temporary and unique authentication code used for secure login or transactions.

It's valid for only one use or a short period, providing an extra layer of security compared to static passwords.

OTPs are often sent via SMS, apps, or email and are effective against common cyber threats.

How Does a One-Time Password Work?

A OTP works by generating a unique, time-limited code that is used for a single login session or transaction.

Here's how it typically works:

  1. Requesting OTP: When a user attempts to log in or perform a sensitive action, the system prompts them to enter their username or identifier.
  2. Generating the OTP: The system then generates a random and unique OTP, either based on time (time-based OTP or TOTP) or a counter (HMAC-based OTP or HOTP).
  3. Delivery Method: The OTP is delivered to the user through a predetermined channel, such as an SMS message, mobile app, email, or voice call.
  4. User Input: The user receives the OTP and inputs it into the login interface or application.
  5. Verification: The system verifies the entered OTP's validity and checks if it matches the one generated for that specific session.
  6. Temporary Use: Once the OTP is used successfully or after a predefined time window, the code becomes invalid and cannot be reused.
  7. Enhanced Security: By requiring the dynamic OTP in addition to the regular password or PIN, the system adds an extra layer of security, protecting against unauthorized access and reducing the risk of password-related attacks.

How Is a Security Token Different From a One-Time Password?

A security token is a physical device or software application that generates and displays dynamic authentication codes.

It is often a small hardware device (such as a key fob or smart card) or a mobile app installed on a user's device.

The token continuously generates new OTPs based on a specific algorithm, typically synchronized with the authentication server.

When a user needs to log in or perform a transaction, they enter the current OTP displayed on the token.

Security tokens are used for multi-factor authentication (MFA) where something the user has (the token) is combined with something they know (like a password) to verify identity.

How Do You Generate OTPs?

There are several methods for generating OTPs, each with its own approach and security characteristics:

1. Time-Based OTP (TOTP):

  • TOTP is based on the current time and a secret key known to both the server and the user's device.
  • The OTP is generated by hashing the secret key and the current time using a cryptographic algorithm like HMAC-SHA1.
  • TOTP is time-synchronized, meaning the server and the user's device must have their clocks set accurately.
  • Commonly used for OTP generation in mobile apps like Google Authenticator.

2. HMAC-Based OTP (HOTP):

  • HOTP generates OTPs based on a counter and a shared secret key.
  • Each time an OTP is used, the counter is incremented, and the next OTP is generated.
  • The server and the user's device must be in sync regarding the counter value.
  • HOTP is commonly used in hardware tokens and some authenticator apps.

3. Random Generation:

  • Some systems generate OTPs randomly using a strong cryptographic random number generator.
  • The OTP is then sent to the user through SMS, email, or other delivery methods.
  • Random generation can also be combined with time-based validity to ensure temporary usage.

4. Challenge-Response OTP:

  • In challenge-response systems, the server sends a challenge (random value) to the user's device.
  • The user's device uses the challenge and a secret key to compute the OTP.
  • The computed OTP is then sent back to the server for verification.

5. SMS-Based OTP:

  • OTPs can be sent to users via SMS messages, using a central SMS gateway or third-party services.
  • When the user receives the OTP, they input it for authentication.

6. Email-Based OTP:

  • OTPs can be sent to users via email messages.
  • The user enters the OTP from the email to complete the authentication process.

The Benefits of One-Time Password Authentication

One-Time Password (OTP) authentication offers several significant benefits that enhance security and protect user accounts and sensitive information:

Enhanced Security:

OTP adds an extra layer of security to traditional passwords and password-based authentication.

Since OTPs are valid for a single use or a short period, they significantly reduce the risk of successful brute-force attacks or password-guessing attempts.

Protection Against Phishing:

OTPs are dynamic and temporary, making them ineffective for phishing attacks.

Even if a user inadvertently provides their OTP to a phishing website, the code will be useless for any future login attempts.

Mitigation of Credential Stuffing:

OTPs help mitigate the risk of credential stuffing attacks, where cybercriminals use stolen username/password combinations from other data breaches.

Since OTPs are time-sensitive or one-time use, they cannot be reused for unauthorized access.

Multi-Factor Authentication (MFA):

OTP is commonly used as part of multi-factor authentication (MFA) strategies.

By combining something the user knows (password) with something they have (OTP), MFA greatly strengthens account security.

No Dependency on Static Passwords:

OTP authentication reduces the reliance on static passwords, which are often weak, reused across multiple services, and prone to data breaches.

This reduces the impact of password-related attacks.

Temporary Access:

Since OTPs are valid for a set period of limited time, they provide temporary access, reducing the window of opportunity for attackers attempting to gain unauthorized access.

User Convenience:

OTPs can be delivered via various channels, including SMS, mobile apps, or email.

Users can choose their preferred method for receiving OTPs, making the authentication process more user-friendly.

Complementary to Existing Security Measures:

OTP authentication technology can be seamlessly integrated into existing authentication systems without requiring major infrastructure changes, making it an accessible security enhancement.

Regulatory Compliance:

In certain industries, such as finance or healthcare, regulatory standards mandate strong authentication measures.

OTP authentication software helps organizations meet these requirements.


OTP authentication is scalable for large user bases, making it suitable for various applications, from individual accounts to enterprise-level systems.

Challenges and Security Concerns of OTP

While one-time password authentication offers enhanced security, there are still some challenges and security concerns associated with its implementation:

1. Delivery Issues: OTPs delivered via SMS or email may experience delays or not arrive at all due to network issues or spam filters. This can lead to user frustration and hinder the authentication process.

2. Phishing Attacks: While OTPs are resistant to traditional phishing, sophisticated attackers can still trick users into providing OTPs through social engineering techniques or by imitating legitimate OTP prompts.

3. Man-in-the-Middle (MitM) Attacks: In certain scenarios, attackers can intercept OTPs during transmission between the server and the user's device, especially if communication channels are not secure.

4. Replay Attacks: If an attacker manages to capture and reuse an OTP within its validity period, they can potentially gain unauthorized access.

5. Token Loss or Theft: In the case of hardware tokens, if a user loses their token or it gets stolen, an attacker could potentially use the OTPs to gain access to the user's accounts until the token is deactivated.

6. Dependency on Mobile Devices: When using mobile-based OTPs, many users need to have their mobile devices with them for authentication, which may not always be convenient or available.

7. Synchronization Issues: In time-based OTP (TOTP) systems, both the server and the user's device must have synchronized clocks. Any discrepancy may result in failed authentication attempts.

8. Denial of Service (DoS) Attacks: Attackers may attempt to flood the authentication system with multiple failed OTP attempts, causing service disruption or resource depletion.

9. Limited Usability for Offline Access: OTP authentication may not be feasible in scenarios where users have limited or no internet connectivity.

10. Password Reset Challenges: If a user forgets their password and relies solely on OTP authentication, they may face difficulties in regaining access to their account.

11. Regulatory Compliance: Depending on the industry and region, specific regulations and compliance standards might impose additional requirements for OTP security.

SMS One-Time Password

SMS One-Time Password is a method of authentication where a unique and temporary one-time password is sent to a user's mobile phone via SMS.

It is commonly used as part of two-factor authentication (2FA) or multi-factor authentication (MFA) processes to provide an additional layer of security for online accounts and transactions.

Here's how SMS OTP typically works:

  1. User Initiation: When a user attempts to log in or perform a sensitive action that requires authentication, they enter their username or identifier.
  2. Request for OTP: The system recognizes the need for additional verification and prompts the user to enter their registered mobile phone number.
  3. SMS Delivery: The system generates a unique OTP and sends it as a text message to the user's mobile phone number.
  4. User Input: The user receives the SMS containing the OTP and enters the code into the login interface or application.
  5. Verification: The system validates the entered OTP's correctness and compares it to the generated OTP. If they match, the user gains access or completes the transaction.
  6. Temporary and Single Use: SMS OTPs are valid for a short period (e.g., a few minutes) and can only be used for one login attempt or transaction. Once used or expired, the OTP becomes invalid.

The History of OTP

The evolution of OTP can be traced through various stages of technological advancements and security needs.

Here's a historical overview:

1. Early OTP Systems (1960s - 1970s):

  • The origins of OTP can be traced back to the 1960s and 1970s when early cryptographic methods were used for secure communication in military and government contexts.
  • Early OTP systems often involved the use of paper-based authentication tokens, where users would manually enter a unique code printed on a card or paper strip.

2. S/Key (1984):

  • S/Key, developed by Leslie Lamport in 1984, was an early example of an OTP-based authentication system.
  • It used a cryptographic hash function to generate a sequence of one-time passwords based on a user's secret passphrase.

3. Time-Based OTP (1990s):

  • In the 1990s, Time-Based One-Time Password (TOTP) algorithms were introduced to generate OTPs based on the current time.
  • These algorithms relied on a shared secret key between the server and the user's device, ensuring the time-synchronized generation of OTPs.

4. RSA SecurID (1986 - Present):

  • RSA SecurID, introduced by RSA Security (now a division of Dell Technologies), revolutionized OTP technology.
  • Launched in 1986, RSA SecurID utilized hardware tokens with LCD displays, generating temporary codes that changed every minute based on a shared seed key.

5. Mobile OTP (2000s - Present):

  • The widespread adoption of mobile phones in the 2000s led to the development of mobile OTP solutions.
  • Mobile apps and SMS-based OTP delivery became popular methods for generating and delivering one-time passwords to users.

6. FIDO Standards (2010s - Present):

  • In the 2010s, the FIDO (Fast Identity Online) Alliance introduced standards like FIDO U2F and FIDO2, promoting strong authentication methods, including OTPs, to improve security and user experience.

7. Advancements in MFA (Present):

  • OTP remains a crucial component of modern multi-factor authentication (MFA) systems, combining with other authentication factors like biometrics, smart cards, and push notifications to enhance security.

What is a OTP Service Provider?

An OTP Service Provider is a specialized company or service that offers One-Time Password (OTP) solutions to organizations seeking to implement secure authentication for their users.

These providers offer the infrastructure, tools, and expertise required to generate and deliver OTPs to end-users, ensuring a seamless and secure authentication process.

Kyle Brandon
Kyle BrandonSystems Engineer - LicenseSpring Software
Kyle Brandon is a Systems Engineer at LicenseSpring Software, based out of Vancouver, Canada. With over two years experience, Kyle helps current and prospective customers with ensuring successful implementation of all LicenseSpring has to offer. Specializing in Computing Science, Kyle uses that experience to assist with troubleshooting user-reported bugs and provide helpful guides.