Intruders often install packet sniffers to capture passwords as they traverse networks during remote log-in processes. Therefore, all passwords should at least be encrypted as they traverse networks. A better solution is to use one-time passwords because there are times when a password is required to initiate a connection before confidentiality can be protected.
One common example occurs in remote dial-up connections. Remote users, such as those traveling on business, dial in to their organization's modem pool to access network and data resources. To identify and authenticate themselves to the dial-up server, they must enter a user ID and password. Because this initial exchange between the user and server may be monitored by intruders, it is essential that the passwords are not reusable. In other words, intruders should not be able to gain access by masquerading as a legitimate user using a password they have captured.
One-time password technologies address this problem. Remote users carry a device synchronized with software and hardware on the dial-up server. The device displays random passwords, each of which remains in effect for a limited time period (typically 60 seconds). These passwords are never repeated and are valid only for a specific user during the period that each is displayed. In addition, users are often limited to one successful use of any given password. One-time password technologies significantly reduce unauthorized entry at gateways requiring an initial password.