Implications of changed security for Apple ID?

Solution 1:

This isn't new. While I can't speak to the exact moment this was added, you can rest assured knowing that your passcode/password is safe. What Apple is doing here is verifying your identity by taking advantage of the fact that you use iCloud Keychain. iCloud Keychain escrow is a fairly complicated procedure, but in essence Apple never sees your passcode, it can only see that their hardware modules granted you access to your escrowed bag which proves that you know the passcode to your devices. It's a really neat solution for account verification!

For more info, see page 86 of the Apple platform security whitepaper.