One-Time Passwords Do Not Provide Non-Repudiation

The title is obvious and it could’ve been a tweet rather than a blogpost. But let me expand.

OTP, or one-time password, used to be mainstream with online banking. You get a dedicated device that generates a 6-digit code which you enter into your online banking in order to login or confirm a transaction. The device (token) is airgapped (with no internet connection), and has a preinstalled secret key that cannot be leaked. This key is symmetric and is used to (depending on the algorithm used) encrypt the current time, strip most of the ciphertext and turn the rest into 6 digits. The server owns the same secret key, does the same operation and compares the resulting 6 digits with the ones provided. If you want a more precise description of (T)OTP – check wikipedia. Of course, there are the SMS OTPs, but they are discouraged and insecure, so I won’t discuss them.

Non-repudiation is a property of, in this case, a cryptographic scheme, that means the author of a message cannot deny the authorship. In the banking scenario, this means you cannot dispute that it was indeed you who entered those 6 digits (because, allegedly, only you possess the secret key because only you possess the token).

Hardware tokens are going out of fashion and are being replaced by mobile apps that are much easier to use and still represent a hardware device. There is one major difference, though – the phone is connected to the internet, which introduces additional security risks. But if we try to ignore them, then it’s fine to have the secret key on a smartphone, especially if it supports secure per-app storage, not accessible by 3rd party apps, or even hardware security module with encryption support, which the latest ones do.

Software “tokens” (mobile apps) often rely on OTPs as well, even though they don’t display the code to the user. This makes little sense, as OTPs are short precisely because people need to enter them. If you send an OTP via a RESTful API, why not just send the whole ciphertext? Or better – do a digital signature on a server-provided challenge.

But that’s not the biggest problem with OTPs. They don’t give the bank (or whoever decides to use them as a means to confirm transactions) non-repudiation. Because OTPs rely on a shared secret. This means the bank, and any (curious) admin knows the shared secret. Especially if the shared secret is dynamically generated based on some transaction-related data, as I’ve seen in some cases. A bank data breach or a malicious insider can easily generate the same 6 digits as you, with your secure token (dedicated hardware or mobile).

Of course, there are exceptions. Apparently there’s ITU-T X.1156 – a non-repudiation framework for OTPs. It involves trusted 3rd parties, though, which is unlikely a bank scenario. There are also HSMs (server-side hardware security modules) that can store secret keys without any option to leak them to the outside world that support TOTP natively. So the device generates the next 6 digits. Someone with access to the HSM can still generate such a sequence, but hopefully audit trail would indicate that this happened, and it is far less of an issue than just a database breach. Obviously (or, hopefully?) secrets are not stored in plaintext even outside of HSMs, but chances are they are wrapped with a master key in an HSM. Which means that someone can bulk-decrypt them and leak them.

And this “can” is very important. No matter how unlikely it is, due to internal security policies and whatnot, there is no cryptographic non-repudation for OTPs. A customer can easily deny entering the code to confirm a transaction. Whether this will hold in court is a complicated legal issue, where the processes in the bank can be audited to see if a breach is possible, whether any of the admins has a motive to abuse their privilege and so on, whether there’s logs of the user activities that can be linked to their device based on network logs from internet carriers, and so on. So you can achieve some limited level of non-repudiation through proper procedures. But it is not much different than authorizing the transaction with your password (at least it is not a shared secret, hopefully).

But why bother with all of that if you have a mobile app with internet connection? You can just create a digital signature on a unique per-transaction challenge and you get proper non-repudiation. The phone can generate a private key on enrollment and send its public key to the server, which can later be used to verify the signature. You don’t have the bandwidth limitation of the human brain that lead to the requirement of 6 digits, so the signature length can be arbitrarily long (even GPRS can handle digital signatures).

Using the right tool for the job doesn’t have just technical implications, it also has legal and business implications. If you can achieve non-repudiation with standard public-key cryptography, if your customers have phones with secure hardware modules and you are doing online mobile-app-based authentication and authorization anyway, just drop the OTP.
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1 thought on “One-Time Passwords Do Not Provide Non-Repudiation”

  1. Nice post, but Europe has a law which requires a 2FA for banking operations. And sadly it allows SMS as a second factor 🙁
    Long way to go…

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