Two-Factor Authentication (2FA) vs One-Time Passwords (OTP): ​​Understanding the Key Differences

Authentication beyond just passwords has become increasingly important for strengthening online security. Two common multi-factor authentication methods used are two-factor authentication (2FA) and one-time passwords (OTP). Both add an extra layer of security on top of what users know, but they implement this in different ways.

2FA and OTP aim to confirm users are who they claim to be when logging in. To use 2FA, you must combine two independent identity factors, such as a password and an authenticator app, that you already possess. OTP generates numeric or alphanumeric passcodes beyond the standard password, delivered via SMS, email, or authenticator application.

While providing improved protection over single-factor logins, 2FA and OTP take multi-factor security to different levels. 2FA bridges multiple identity categories, making compromising the account more difficult even if one factor is bypassed. OTP adds a code on top of a password but relies on possessing the device used to receive the code.

In this article, we will look at the differences between 2FA and OTP methods. It will include an overview of their definitions, typical practices, advantages and disadvantages, and scenarios for proper use. The goal is to help organizations and individuals determine which multi-factor option offers the best-layered security given their needs and environment.

What is Two-Factor Authentication (2FA)?

The security procedure known as two-factor authentication (2FA) verifies a user's identity during a login or other transaction by requiring two distinct credentials from different categories. The two factors are usually a "what you know" element (like a password or PIN) combined with either "what you have" (such as a security key or security token) or "what you are" (biometrics like a fingerprint).

The main types of 2FA include:

  • SMS or authenticator app codes: These involve the user receiving a one-time use code via text message or authenticator app that must be entered along with their password.

  • Security keys: Physical security keys such as YubiKey can authenticate users with a tap or button press in addition to their password.

  • Biometrics: Fingerprint, facial, or iris recognition on supported devices provides biometrics as a secondary factor.

  • Verification through approved apps: Applications like Google Authenticator generate time-based, one-time passwords that must be matched for login approval.

Daito 2FA

What is OTP?

One-Time Password (OTP) refers to a numeric or alphanumeric code that is valid for a single login session or transaction. This code acts as a secondary factor of authentication beyond the standard password.

OTP adds an extra layer of identity verification by requiring users to enter a unique, time-sensitive code in addition to their password. These codes are usually generated automatically and delivered to the user through a secondary channel, like:

  • SMS text messaging to a cell phone

  • Time-based codes from an authenticator app

  • Single-use passwords emailed to a registered account

After entering their username/password on the login page, the user must then provide the OTP code received through one of these methods. The code is only valid for a short period, usually 30 seconds to 5 minutes before a new one is required.

OTP falls under the "something you have" category of factors since possession of the receiving device (phone, app) is needed to complete authentication. However, unlike true 2FA, OTP only confirms the user through a single factor rather than multiple independent credentials.

Even though OTP is more secure than standalone passwords, its effectiveness depends on the channel used to deliver codes (such as SMS or authenticator apps) remaining intact. It does not provide the defence of combining unrelated identity factors that 2FA achieves.

Differences between 2FA and OTP

Factors Used

  • 2FA combines two or more independent identity factors, like passwords, security keys and biometrics.

  • OTP was only confirmed through receipt of a single-use code, classified as a "what you have" factor.

Security Strength

  • 2FA binds multiple identity factors, so bypassing one does not compromise the account.

  • OTP relies on possession of the device, so interception could allow unauthorised logins.

Common Implementation Methods

  • 2FA examples include authenticator apps, security keys, SMS, and biometrics

  • OTP most widely uses SMS codes but also apps and hardware tokens

  • 2FA setup may include dedicated security keys or biometrics enrollment.

  • OTP activation is quicker through SMS or authenticator app setup.

To summarise, while both techniques add security beyond passwords alone:

  • 2FA takes a defence-in-depth approach by combining independent identity factors.

  • OTP adds a one-time code as a single secondary check of possession versus identity.

Therefore, even in the event of a compromised method, 2FA safeguards accounts, while OTP may permit access if the receiving device is intercepted.

Security Analysis for 2FA and OTP

Relative Strengths:

  • 2FA provides stronger security by binding multiple distinct identity factors

  • OTP adds protection over solo passwords but relies on a single device/channel

Relative Weaknesses:

  • 2FA setup can involve additional coordination of factors

  • OTP is vulnerable if code transport is SMS or app on a compromised device

Vulnerabilities:

  • SMS interception - OTP codes sent via SMS are at risk from mobile network weaknesses

  • Sim swap fraud - Taking control of a phone number to receive OTP codes

  • Phishing apps - OTP authenticator applications themselves could be spoofed

To mitigate risks:

  • For OTP, use time-based codes from trusted authenticator apps when possible

  • 2FA with separate authenticator apps and security keys prevents multiple risks

  • OTP via SMS should have number verification and alerts for SIM swaps

To sum up, both strengthen password security, but 2FA creates a stronger barrier since no single point compromises the system. If there is a chance of an attack on the channel used to deliver the codes, OTP stays vulnerable.

Conclusion

In summary, two-factor authentication and one-time passwords both add important extra layers of security for user accounts. However, there are significant distinctions in their implementation of multi-factor authentication.

2FA establishes a stronger security posture by binding two or more independent identity factors, making accounts more resistant even if one method is circumvented. OTP confirms user identity through a single secondary check of possession of a device.

For business environments with high-risk administrative or financial systems, 2FA using separate authenticator apps and security keys provides the greatest protection against compromised accounts or fraudulent logins. The defence-in-depth approach is important for strict compliance in regulated industries as well.

In other less sensitive business contexts, OTP can offer a workable solution through authenticator apps to balance security and ease of rollout. SMS-based codes should be avoided where possible due to spoofing vulnerabilities.

If your business requires a shared two-factor authentication solution across multiple team accounts from one centralised management system, consider a platform like Daito Authenticator designed for collaborative work environments. A shared 2FA service can enforce strong authentication policies while streamlining the user experience.

When it comes to sensitive data or systems, 2FA is generally advised, but OTP can be useful in lower-risk situations or for personal use. An appropriate evaluation of security requirements, risks, and compliance establishes the best multi-factor strategy.