Dongles similar to this exist, but you've just moved the problem: the user now needs to type their password into that device. If there were a real zero-knowled

Dongles similar to this exist, but you've just moved the problem: the user now needs to type their password into that device. If there were a real zero-knowledge protocol, the user could prove to the device that they know the password, without having to type it: the device still wouldn't have it. Even if someone stole the device, copied it, or modified it to record the user's input, this would not compromise the user's security in the future. (At worst it could MITM a current session, while leaving the user's password secure and uncompromised.) That is not the case with the dongle you have described.