Encrypted vs Hashed Passwords - Which is better?

Encryption and hashing are different terms and operations.

Topics like password strength, protection, encryption are almost everywhere these days. Password maintenance related subjects like password managers, recovery tools and crackers are also gaining attention. A user name and a password is a must in almost all software applications like email applications, web sites, mobile and desktop applications; mainly to provide user specific information or functionality.

Security of the password is so much important not because the data stored behind a user account is so much valuable to the owner, but might be to some other bad guy who is looking for personal information. To overcome the pain of memorizing multiple passwords, users might use one single much stronger password across multiple applications which is a bad practice considering the security aspect.

As anyone would guess, most of the application specific databases are having a table named user or users including two columns named user name and password; and interestingly the password in plain text! If your application database is storing passwords in plain text format, there is no hope for security in your application. People would argue that the application is well protected, HTTPS or TLS is in action; so the users are safe. What if someone get access to your database? That is the end of the security of all your users; and if those users were reusing their most secret and strongest password across multiple web sites, can you imagine what will be the situation? If your application stores password in plain text, it must be time to think at least about encrypted passwords.

Is encryption good?

However the intention of this article is not to discuss about plain text passwords, but about encrypted passwords stored in databases. Plain text passwords can be encrypted using symmetric encryption algorithms like DES, AES or with any other algorithms and be stored inside the database. At the authentication (confirming the identity with user name and password), application will decrypt the encrypted password stored in database and compare with user provided password for equality. In this type of an password handling approach, even if someone get access to database tables the passwords will not be simply reusable. However there is a bad news in this approach as well. If somehow someone obtain the cryptographic algorithm along with the key used by your application, he/she will be able to view all the user passwords stored in your database by decryption. "This is the best option I got", a software developer may scream, but is there a better way?

Yes there is, may be you have missed the point here. Did you notice that there is no requirement to decrypt and compare? If there is one-way-only conversion approach where the password can be converted into some converted-word, but the reverse operation (generation of password from converted-word) is impossible. Now even if someone gets access to the database, there is no way that the passwords be reproduced or extracted using the converted-words. In this approach, there will be hardly anyway that some could know your users' top secret passwords; and this will protect the users using the same password across multiple applications. What algorithms can be used for this approach?

Cryptographic hash function

Cryptographic hash functions can be used to achieve one-way-only conversion requirement. As there is no support to go back from converted text to original text, there is no risk involved in the safety of the valuable and secret password. There are many well known and publicly available algorithms for this task, and most popular ones are MD5 and SHA-1. There are freely available tools implementing these algorithms; so incorporating hashed approach into applications is not a pain. Even though these algorithms provide a far better security, both MD5 and SHA-1 are proven to be weak and vulnerable. It is recommended to go with SHA-2 considering the preciousness of the password. However at the moment, there is an open competition to created a replacement algorithm for SHA-2 which is called SHA-3 and this will be available in 2012.

In summary; when an application level security is discussed/designed make sure that passwords are never kept in plain text, but at least in encrypted form; but try to reach the hash function based password handling as much as possible.