Decoding One-Time Password (OTP)- Benefits & Features Explained

Decoding One-Time Password (OTP)- Benefits & Features Explained

Every other day we hear about hackers and fraudsters trying to hack accounts and wreaking havoc in people's lives. Unfortunately, conventional passwords do not always offer the best protection in this fast-paced digital world. Spammers can hack them, leading to the leaking of personal and corporate data. OTPs are the best and easiest solution to such problems that even strong traditional passwords fail to solve. Therefore, many companies have incorporated the OTP password mechanism to protect themselves and their customers. Let us first understand what an OTP is and why they are so beneficial.

What is a one-time password?

A one-time password or OTP is commonly used as part of a multi-factor authentication system. An OTP is a string of numeric or alpha-numeric characters generated for a single login procedure. This means the password will no longer be valid once the user logs into their account or the website. Two essential components that are the intrinsic pillars on which an OTP is designed are that it expires quickly and, secondly, cannot be reused.

The technical support team can issue the OTP to people who have forgotten their login credentials to a website or account. It is also issued as an additional layer of security, thus protecting the account against unverified users. As long as the provider uses time-based synchronization and the person has their mobile or OPT hardware, they can prevent any threat factors from spamming and attacking the account credentials. 

It disables any forged entry or logs in someone's account. This is also easy to use for the customers and provides faster processing.

Types of One-time password

There are different types of one-time passwords as per the use cases. Here, we are providing a list of them.

Hard tokens

Hard tokens are physical devices that transmit the OTP and help gain access to accounts and resources. Hard tokens are of three types.

  • Connected tokens: Users can connect these tokens to the system or the devices they are trying to get access to.
  • Disconnected tokens: Pocket-size vital fobs, mobile phones, and banking security devices are some examples.
  • Contactless token: These tokens transmit data to a system that analyses the data and determines if the user has access rights. Bluetooth tokens are an example of such contactless tokens.

Soft tokens

Soft tokens exist as software on a device, like a laptop, and are not physical items we possess. Soft token authentication usually takes the form of an app that sends message notifications to the user so that the user can verify their identity.

Understanding the various features of a one-time password

A one-time password comes with several features and traits. Let's discuss some of the most crucial ones.

How to generate a one-time password or OTP?

An authentication manager on the network server produces a number or shared secret using one-time password methods whenever an unauthorized user tries to enter a system or perform a transaction on an unknown device. The smart card or device security token compares and validates the one-time password, verifying that the user has a particular number and unique algorithm.

Many businesses use SMS to send a temporary passcode as a second authentication factor. For example, the temporary passcode is obtained from the band via cellphone communications after entering the customer login credentials on networked information systems and transaction-oriented web applications.

To access the account or system, the user provides their user ID, conventional password, and temporary passcode for two-factor authentication(2FA).

How does a one-time password work?

OTP-based authentication solutions rely on shared secrets between the customer's OTP generating app and the authentication server. The HAMC algorithm, also known as hashed message authentication code, is used to create values for one-time passwords. A moving component, TOTP, and an event counter component, HOTP, are involved.

To increase security, the OTP values contain minute or second-level timestamps. Asa result, users can get the one-time password through different channels, such as an SMS-based text message, an email, or a particular application on the endpoint.

What is the difference between a one-time password and two-step verification?

Two-step verification requires a person to input their regular password and a unique code sent to their phones. Unfortunately, this code will only work for 30 seconds, no matter how many times it has been used or created today or even one year ago. This means that even if a hacker knows the password, they must also access the person's mobile phone to access their accounts.

Benefits of OTP

A significant question arises about why we should use OTP verification. The top reason is that it offers the best protection for the users on their digital platforms. However, there are several more;

Prevents online identity theft

One of the most significant benefits offered by OTP is the security it provides. One-time passwords reduce cyber crimes. In addition, it becomes invalid within a few seconds, thus preventing hackers from retrieving the secret codes and using them.

Reduces support from the IT team

OTP passwords are generated automatically without any hassle. This means the customers will not have to do anything independently. They need to enter the OTP password once it is generated. This reduces the need for support from the technical teams. OTP passwords reduce the chances of mistakes from the customer's end and make the process more secure and seamless.

Improves user experience

Another benefit of a one-time password is that it enhances the customer experience. The OTP passwords are a transparent way to login to your account. It is a trustable process that the users can rely upon. It improves the user experience through a simple yet reliable process.

Resistance to replay attacks

OTPs provide a distinct advantage over static stand-alone passwords. Unlike traditional passwords, OTPs are not vulnerable to replay attacks. During such attacks, the hacker can generate data transmission, record it, and use it further to access an account. In addition, the OTP will be deemed invalid when the user gains access to their accounts. Thus there can be no opportunity for foul play.

Difficult to guess

One-time passwords are generated with the help of algorithms that make use of randomness. This critical feature makes it difficult to hack, even for experienced hackers. In addition, OTPs are valid only for a short time, require the user to know a previous password, or involve providing the user with a challenge. All these factors reduce an app or website's attack surface compared to password-only authentication.

Ease of adoption

It is straightforward to integrate one-time passwords into their authentication process. However, the cryptic nature of these codes makes them difficult for people to remember for a long time and can be used in all kinds of industries.


One-time passwords offer the cheapest and best solutions to the problem of weak cyber security. One-time passwords deliver simple solutions without the association of proprietary hardware. To keep personal and corporate data safe, OTPs should be employed to protect the system better. In a world of fraudsters, it would be nice to know that your data is adequately protected. The demand for OTPs will grow each day as our presence in the digital world continues to grow. As more and more people use the internet to shop, study, work and socialize, it is no longer sufficient to only rely on the security provided by traditional passwords.

However, it comes with complex passwords that are difficult to remember. In the case of industries like banking and e-commerce, user privacy is essential.  Therefore, OTP is one of the most common methods to reduce security risk.