Terminology-wise, there is a clear distinction between two-factor authentication (multi-factor authentication) and two-step verification (authentication), as this article explains. 2FA/MFA is authentication using more than one factors, i.e. “something you know” (password), “something you have” (token, card) and “something you are” (biometrics). Two-step verification is basically using two passwords – one permanent and another one that is short-lived and one-time.
At least that’s the theory. In practice it’s more complicated to say which authentication methods belongs to which category (“something you X”). Let me illustrate that with a few emamples:
- An OTP hardware token is considered “something you have”. But it uses a shared symmetric secret with the server so that both can generate the same code at the same time (if using TOTP), or the same sequence. This means the secret is effectively “something you know”, because someone may steal it from the server, even though the hardware token is protected. Unless, of course, the server stores the shared secret in an HSM and does the OTP comparison on the HSM itself (some support that). And there’s still a theoretical possibility for the keys to leak prior to being stored on hardware. So is a hardware token “something you have” or “something you know”? For practical purposes it can be considered “something you have”
- Smartphone OTP is often not considered as secure as a hardware token, but it should be, due to the secure storage of modern phones. The secret is shared once during enrollment (usually with on-screen scanning), so it should be “something you have” as much as a hardware token
- SMS is not considered secure and often given as an example for 2-step verification, because it’s just another password. While that’s true, this is because of a particular SS7 vulnerability (allowing the interception of mobile communication). If mobile communication standards were secure, the SIM card would be tied to the number and only the SIM card holder would be able to receive the message, making it “something you have”. But with the known vulnerabilities, it is “something you know”, and that something is actually the phone number.
- Fingerprint scanners represent “something you are”. And in most devices they are built in a way that the scanner authenticates to the phone (being cryptographically bound to the CPU) while transmitting the fingerprint data, so you can’t just intercept the bytes transferred and then replay them. That’s the theory; it’s not publicly documented how it’s implemented. But if it were not so, then “something you are” is “something you have” – a sequence of bytes representing your fingerprint scan, and that can leak. This is precisely why biometric identification should only be done locally, on the phone, without any server interaction – you can’t make sure the server is receiving sensor-scanned data or captured and replayed data. That said, biometric factors are tied to the proper implementation of the authenticating smartphone application – if your, say, banking application needs a fingerprint scan to run, a malicious actor should not be able to bypass that by stealing shared credentials (userIDs, secrets) and do API calls to your service. So to the server there’s no “something you are”. It’s always “something that the client-side application has verified that you are, if implemented properly”
- A digital signature (via a smartcard or yubikey or even a smartphone with secure hardware storage for private keys) is “something you have” – it works by signing one-time challenges, sent by the server and verifying that the signature has been created by the private key associated with the previously enrolled public key. Knowing the public key gives you nothing, because of how public-key cryptography works. There’s no shared secret and no intermediary whose data flow can be intercepted. A private key is still “something you know”, but by putting it in hardware it becomes “something you have”, i.e. a true second factor. Of course, until someone finds out that the random generation of primes used for generating the private key has been broken and you can derive the private key form the public key (as happened recently with one vendor).
There isn’t an obvious boundary between theoretical and practical. “Something you are” and “something you have” can eventually be turned into “something you know” (or “something someone stores”). Some theoretical attacks can become very practical overnight.
I’d suggest we stick to calling everything “two-factor authentication”, because it’s more important to have mass understanding of the usefulness of the technique than to nitpick on the terminology. 2FA does not solve phishing, unfortunately, but it solves leaked credentials, which is good enough and everyone should have some form of it. Even SMS is better than nothing (obviously, for high-profile systems, digital signatures is the way to go).