What is password encryption and how does it work?

While people often search for "password encryption," the correct technical practice for securely storing user credentials in a database is actually password hashing. Without hashing, anyone accessing a user database on a company's servers (including hackers) could easily view stored passwords in plain text.

Even a strong 32-character password created using a secure password generator is a massive liability if the database isn't secured properly. If someone can read your password on a server, they can use it simply by copy/pasting it—no matter how long or complicated the password might be!

Hashing scrambles your password before saving it on the server. So, if someone hacks the server, instead of finding password123, they find a random series of letters and numbers.

In this article, we're going to explore the world of password hashing and encryption, why strong passwords matter, and how you can practice better credential management!

TeamPassword is the password management solution for small businesses! Create, store, and share login credentials safely with employees, contractors, and clients. Sign up for a 14-day free trial today!

Understanding Password Security: Hashing vs. Encryption

To explain database security effectively, we must first grasp the language and correct a common misconception. Encryption is a two-way street; hashing is a one-way street. Databases should hash passwords, while password managers encrypt your password vault.

• Encryption: A reversible process. Data is scrambled using a cryptographic key and can be decrypted back to its original plaintext using the correct key (e.g., AES-256).
• Hashing: A one-way mathematical algorithm that converts your password into a seemingly random, fixed-length string of characters. It cannot be mathematically reversed.
• Key: Used to lock and unlock encrypted data using a random string of bits.
• Hash: The random series of numbers and letters representing your password. The system uses your hash instead of the raw password for authentication.
• Salt: Random data appended to your password before it goes through the hash function, making the resulting hash unique per user.
• Pepper: A secret cryptographic key added to the password that is stored securely on the application server, completely separate from the database.

How Does Password Hashing Work?

When you create a new account, your chosen password undergoes a one-way transformation process to protect its integrity. The algorithm converts your password into a hash, which is stored on the server. For example:

• Original password: MyCatLovesWalkingInTheRain!
• Hashed password: 6AF1CE202340​FE71BDB914AD5357​E33A6982A63B

To authenticate your identity, the system recreates the hash of your entered password upon login. If this newly generated hash matches the stored hash, the system grants access. Because this is a one-way process, a hacker who steals the database only gets the hashes, not your original password.

How Salt and Pepper Work

While hashing provides a foundational layer of security, it's not infallible on its own. A standard hash function creates a unique hash for each password, but not each user. If two users have the exact same password, their hashes will be identical, making them vulnerable to pre-computed attacks like rainbow tables.

To overcome this, engineers use salting. A salt appends a unique, random value to the password before the hash function runs. This way, even identical passwords generate completely different hashes.

Modern systems also use a pepper. While a salt is stored in the database right next to the hash, a pepper is stored separately on the application server. If a hacker breaches the database but fails to compromise the application server, they cannot crack the hashes because they lack the secret pepper.

Advanced Password Protection: Argon2

Salting and peppering are essential, but modern security protocols employ advanced, computationally intensive algorithms to fortify protection. Argon2 is currently considered the gold standard for password hashing. As the winner of the Password Hashing Competition (PHC), Argon2 is specifically designed to be "memory-hard," meaning it actively resists brute-force attacks from massive, AI-powered GPU arrays.

5 Common Encryption and Cryptography Standards

While passwords should be hashed in databases, encryption is used to secure files, data in transit, and password manager vaults. Here are five standards you should know:

1. Data Encryption Standard (DES)

While applications no longer use DES, it's important to mention because of its historical influence. Developed by IBM in the 1970s, it was the original 56-bit encryption standard. However, hackers have been able to break DES keys since the late 90s, rendering it entirely obsolete.

2. Triple DES (3DES)

Triple DES was created to apply the DES algorithm three times to each data block. While many financial institutions historically used it to encrypt ATM PINs, the National Institute of Standards and Technology (NIST) officially retired 3DES in 2023. It is now considered fundamentally insecure and deprecated.

3. Advanced Encryption Standard (AES)

AES is the modern gold standard for encryption—trusted by the United States Government and top-tier security organizations globally. While 128-bit AES is highly secure, modern businesses prefer heavy-duty 256-bit encryption.

At TeamPassword, we use AES 256-bit encryption to secure your password vault, ensuring the highest levels of security for our clients. (Note: Because this is a vault you need to retrieve passwords from, AES two-way encryption is used rather than one-way hashing).

4. Blowfish and bcrypt

American cryptographer Bruce Schneier designed Blowfish in 1993 as an antidote to weak DES encryption. While the original Blowfish cipher had vulnerabilities, it birthed bcrypt—a highly respected and widely used password hashing function that incorporates key stretching to slow down brute-force attacks.

5. Rivest-Shamir-Adleman (RSA)

RSA is one of the oldest public-key cryptosystems and is widely used to transfer data securely across the internet (like securing HTTPS connections). The encryption works with a public key and a private key. Due to its mathematical complexity, RSA is excellent for data transfer, but it is not intended for database password storage.

Why Strong Passwords Matter

Robust database security can only prevent criminals from viewing saved credentials if the server is breached—it cannot prevent hackers from guessing weak, commonly used passwords on the login screen. If you reuse the same password for multiple accounts, credential stuffing attacks will easily compromise your security!

Furthermore, if a database is stolen, hackers use AI-driven brute-force tools to crack the hashes. If your password is short, it will be cracked in seconds, regardless of the hash algorithm.

Improving Your Password Management

The NIST SP 800-63B Digital Identity Guidelines have revolutionized how we approach password security. Criminals rely on people using weak, predictable patterns. Here are modern tips for securing your accounts:

1. Focus on Length: Forget the old "8-character minimum" rule. Modern GPUs can crack 8-character passwords instantly. NIST recommends using long passphrases of at least 15 characters (e.g., MyBlueCoffeeMugSpillsAlways!).
2. Never Reuse Passwords: Ensure every single account has a unique credential.
3. Stop Arbitrary Password Rotation: NIST advises against forcing users to change their passwords every 90 days. Forced rotation leads to predictable passwords. Only change a password if you suspect it has been breached.
4. Embrace Passkeys: As the industry moves toward passwordless authentication, passkey technology is becoming the new standard. Passkeys use device biometrics to authenticate you, eliminating the password entirely.
5. Use a Password Manager: Memorizing unique 15-character passphrases for dozens of accounts is impossible. A password manager like TeamPassword generates, stores, and autofills your credentials securely.

Why You Need a Password Manager like TeamPassword

Instead of remembering the credentials for every account, you only need to memorize the one ultra-strong master passphrase to log into your password manager.

TeamPassword keeps all of your credentials safely stored and encrypted using AES-256. Instead of typing your credentials, you use one of TeamPassword's browser extensions to log into accounts seamlessly.

Built for Teams

TeamPassword's best feature is its ability to share credentials with team members securely. Instead of texting or emailing passwords, you provide access directly through TeamPassword.

You can create groups in TeamPassword to share access with employees, clients, contractors, and freelancers. When someone no longer needs access, simply remove them from the group with a single click. Adhering to the principle of least privilege has never been easier.

Built-In Password Generator

TeamPassword features a built-in secure password generator so you can instantly create robust 15+ character passphrases for every new account. TeamPassword ensures you never reuse the same credentials, protecting you from modern credential stuffing attacks.

Monitor Login Activity

TeamPassword's activity log keeps track of every action across all of your accounts—logins, updates, new team members, shared access, and more. You can also set up email notifications for specific actions so you can react quickly to any unauthorized changes.

Get Your Free TeamPassword Trial

Server-side hashing isn't enough to protect your business if your team uses weak passwords! You need a robust password manager like TeamPassword to create, store, and share credentials securely.

Sign up for a 14-day free trial and let TeamPassword secure your company's digital assets today.