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Are we royally screwing up two-factor authentication

One of our stated goals has always been to help get rid of passwords (alright,  reduce their prevalence).  They aren't secure enough and are a big pain for the end user.  Attempts to make them stronger, such as 60 day expirations and complexity requirements, make them much much worse.  

memeI have watched as a number of attacks have shown the weaknesses and hacks have exposed personal data and yet there was no movement for change until Mat Honan's attack.  Then all of the sudden, OMG, we all need two-factor auth and shame on those services that do not provide it.  Web services started adding two-factor authentication and there's even a web site listing which services do and shaming those that don't offer two-factor. There's a full-on rush to two-factor all the things. 

So what's my problem?  We are *adding* two-factor authentication.  We aren't getting rid of passwords at all.  Users now typically login with their usernames and password and are then prompted to authorize the access (as with Twitter, though I haven't been prompted for that in a long while) or to enter an OTP (as with Amazon's EC2).

Even most corporate sysadmins struggle with this concept. Most assume that you need to perform authorization against AD or LDAP using both the username and static password and that the OTP should be an additional process.  This is not case since Windows Server 2008 and IAS for Windows and never for RADIUS/LDAP.  IAS (now NPS) will do the authorization in AD based on the username alone.  If authorization passes, then the username and OTP are proxied to the authentication server as per the RADIUS standard.  Yet many admins still want both an AD password and OTP. If the OTP encompasses both factors then asking for the AD password is just more of the same factor, more risk that the password will be compromised and more hassle for your users.

In addition to being weak, passwords are huge pain in the ass.  We should be taking advantage of this opportunity to vastly improve authentication and we are not.

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