One large reason that option 2 isn't great is because people will forget or lose their key. And at that point you'll have a very angry customer when you tell th

One large reason that option 2 isn't great is because people will forget or lose their key. And at that point you'll have a very angry customer when you tell them that you can't let them in or give them their data back (or at least not any useful data). People don't truly understand just how impossible it is to regain access to their data.