A one-time password (OTP), also known as one-time pin or dynamic password, is a password that is valid for only one login session or transaction, on a computer system or other digital device.
OTPs avoid a number of shortcomings that are associated with traditional (static) password-based authentication; a number of implementations also incorporate two-factor authentication by ensuring that the one-time password requires access to something a person has (such as a small keyring fob device with the OTP calculator built into it, or a smartcard or specific cellphone) as well as something a person knows (such as a PIN).
The most important advantage that is addressed by OTPs is that, in contrast to static passwords, they are not vulnerable to replay attacks. This means that a potential intruder who manages to record an OTP that was already used to log into a service or to conduct a transaction will not be able to abuse it, since it will no longer be valid.
A second major advantage is that a user who uses the same (or similar) password for multiple systems, is not made vulnerable on all of them, if the password for one of these is gained by an attacker. A number of OTP systems also aim to ensure that a session cannot easily be intercepted or impersonated without knowledge of unpredictable data created during the previous session, thus reducing the attack surface further.
OTPs have been discussed as a possible replacement for, as well as enhancer to, traditional passwords. On the downside, OTPs are difficult for human beings to memorize. Therefore, they require additional technology to work.