He invented the first hardware security module (HSM), the so-called "Atalla Box", a security system that secures a majority of transactions from ATMs today. At the same time, Atalla contributed to the development of the personal identification number (PIN) system, which has developed among others in the banking industry as the standard for identification.
The work of Atalla in the early 1970s led to the use of hardware security modules. His "Atalla Box", a security system which encrypts PIN and ATM messages, and protected offline devices with an un-guessable PIN-generating key. He commercially released the "Atalla Box" in 1973. The product was released as the Identikey. It was a card reader and customer identification system, providing a terminal with plastic card and PIN capabilities. The system was designed to let banks and thrift institutions switch to a plastic card environment from a passbook program. The Identikey system consisted of a card reader console, two customer PIN pads, intelligent controller and built-in electronic interface package. The device consisted of two keypads, one for the customer and one for the teller. It allowed the customer to type in a secret code, which is transformed by the device, using a microprocessor, into another code for the teller. During a transaction, the customer's account number was read by the card reader. This process replaced manual entry and avoided possible key stroke errors. It allowed users to replace traditional customer verification methods such as signature verification and test questions with a secure PIN system.
A key innovation of the Atalla Box was the key block, which is required to securely interchange symmetric keys or PINs with other actors of the banking industry. This secure interchange is performed using the Atalla Key Block (AKB) format, which lies at the root of all cryptographic block formats used within the Payment Card Industry Data Security Standard (PCI DSS) and American National Standards Institute (ANSI) standards.
Fearful that Atalla would dominate the market, banks and credit card companies began working on an international standard. Its PIN verification process was similar to the later IBM 3624. Atalla was an early competitor to IBM in the banking market, and was cited as an influence by IBM employees who worked on the Data Encryption Standard (DES). In recognition of his work on the PIN system of information security management, Atalla has been referred to as the "Father of the PIN" and as a father of information security technology.
The Atalla Box protected over 90% of all ATM networks in operation as of 1998, and secured 85% of all ATM transactions worldwide as of 2006. Atalla products still secure the majority of the world's ATM transactions, as of 2014.