What I am trying to do is create two-step verification to logon to my mac, one being that you would need to input a SD card (formated with special format or something) and then also have a password. Is there any software out there that could do this or any way of programming it so that once it reads the SD Card it makes the password bar visible for logon. Would it be easier to do it with Linux since it is open source? Any help in the right direction is appreciated. Thanks
I'm not sure this is possible on MAC, but on Linux your best bet would be to encrypt the home partition, or the whole disk, with dm-crypt and then store the key file on SD card, or USB drive.
Here's how to do that in Arch Linux for example: https://wiki.archlinux.org/index.php/Dm-crypt_with_LUKS#Storing_the_Key_File
I think this is also possible with TrueCrypt and it is available on MAC, check this section of the docs for storing keyfiles on USB sticks (should apply to SD cards all the same) http://www.truecrypt.org/docs/?s=keyfiles