What is Password Vaulting? The Ultimate Guide to Password Vaults [2024]

January 16, 2024
5 min

Protect yourself from future breaches

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Think of password vaulting as building a secret fortress where all your passwords rest safe and sound. Imagine that encryption is like a dragon protecting the fortress.

Believe it or not, with the right password vault, protecting yourself against cybercriminals isn’t too difficult. You just need to follow some security best practices, like storing your login credentials in a reputable password manager, using MFA (multi-factor authentication) and biometric security, and using complex passwords.

In this guide, we explain the meaning of password vaulting and how it protects your credentials against adversaries.

What is Password Vaulting?

Password vaulting involves storing your credentials within a password manager. A password manager is a high-tech digital safe where you can store your passwords behind multiple layers of encryption.

Instead of juggling multiple passwords or scribbling them down on sticky notes (yikes, not safe!), put your mind at ease by storing your passwords in a password vault. Password managers protect your passwords and make it easier to find them when you need them.

Password vaulting vs credential vaulting

Password and credential vaulting differ in terms of scope. While password vaulting includes securing passwords, credential vaulting involves making some extra space in your secure digital fortress for confidential information beyond passwords. 

This confidential information could include API keys, certificates, and encryption keys—anything that works as a key to your systems or sensitive resources. 

Password vaults vs password managers 

While both password vaults and password managers secure sensitive login information, password vaults are typically used to securely store and encrypt passwords without additional privacy features

In contrast, password managers often come equipped with more sophisticated features such as password generation, autofill capabilities, and even the ability to assess the strength of your passwords. So while the terms are sometimes used interchangeably, a password manager provides a more comprehensive solution for managing your online security–ensuring that your complete digital life is both convenient and secure.

Benefits of Password Vaulting

Password vaulting secures your passwords, allows you to store and access them conveniently, and gives you peace of mind.

Better Security & Privacy 

According to IBM, the average cost of a data breach is $4.45 million. Vaulting your passwords can potentially save you some serious money–and can protect you against serious crimes like identity theft.

Once you add passwords to the vault and set up MFA, the password manager hashes and encrypts your passwords locally and uploads them to a server. The encryption prevents cybercriminals from intercepting your data–even if they manage to gain access to your network.

Many vaulting apps don’t only store passwords. They can also generate complex passwords and allow users to share passwords securely with approved individuals. 

For example, Cloaked helps you replace existing passwords across multiple platforms (or identities) with just a few clicks. There are multiple ways in which Cloaked secures your credentials— the autofill feature securely fills login credentials into a webpage, and the email and phone number generators allow you to keep your personal information private.

reddit signin


Of course, Cloaked isn’t only a password vault. Cloaked also helps:

  • Create new identities that include a working email and phone number
  • Replace information across accounts in just a few clicks using AutoCloak
  • Share information or entire identities securely

Need a comprehensive personal security solution? Try Cloaked


The “I forgot my password” process is helpful…but having to use the feature repeatedly can be frustrating.

Imagine not having to remember any of your passwords. Password vaults can make your imagination come true with an auto-filling feature.

When you’re on a webpage for which you’ve stored credentials in the vault, the vaulting app detects the relevant fields and prompts you to fill in your credentials.

Once authorized, the app auto-fills your credentials so all you have to do is click on the login button. You never have to remember a password again because the vaulting app does the heavy lifting for you.

Password vaults also sync passwords across multiple devices so you can access your passwords from anywhere using single sign-on (SSO).

Security Alerts and Monitoring

Password vaults can assess your password’s strength. It also alerts you about weak and reused passwords, encouraging you to follow security best practices.

Some password vaults integrate with password databases to track known data breaches. They monitor these databases to see if any of your passwords have been compromised. If the vault finds a breach, it notifies you about potential risks and the next steps.

How Password Vaulting Works

Given the recent breaches, convincing users of the safety and efficacy of password vaults has become challenging. There’s a need to restore consumer confidence by discussing the security measures modern password managers deploy to prevent security breaches.

A password vault works pretty much like a safe, except that the contents of the safe are disguised. When you add a password to the vault, the password is converted into a secret code. 

Only your vault knows how to decode it, safeguarding it against prying eyes. Once the password is encrypted, here’s how password vaulting works:

     1. Master Passwords

Your master password is the golden ticket to accessing the password vault. You can choose a password when you set up your vault for the first time. Once you choose a password, the vault doesn’t store the password itself.

Here’s what happens:

  • Key derivation: The password undergoes key derivation. It’s a process where the vault creates a cryptographic key for your password using algorithms like bcrypt or Argon2. 
  • Salt and hash: Think of salt as random seasoning added to your password to fortify it further. The password vault then hashes the salted password (converts the password into a fixed-size text string) using a one-way hashing function. This string of characters is unique and irreversible–and this is what your password vault stores.
  • Decryption: When you use your master password to log in, the password vault uses the same process. It salts, hashes, and derives the password into a key. If the derived key matches the stored hash, it grants you access to the vault. So you see, the password vault never actually transmits the master password. It merely uses it as a means to unlock the encrypted vault.

     2. Password Generation

Sixty-six percent of Americans use the same password for multiple accounts. While this isn’t a great password security practice, it’s understandable—the same survey shows that 75% of Americans are frustrated trying to keep track of passwords. 

You need a unique and complex password for each account—and no, you shouldn’t use ChatGPT-generated passwords. Your best bet is to use password managers that can generate strong passwords using specific algorithms and criteria.

Here are the aspects a password vault considers when generating passwords:

  • NIST guidelines: NIST (National Institute of Standards and Technology) provides guidelines. NIST Special Publication 800-63B suggests that passwords should be long, shouldn’t have any dictionary words or phrases, and use a mix of character types. Password managers use these guidelines when generating passwords.
  • Randomization: Password vaults are designed to generate randomized passwords. They use algorithms or cryptographic random number generators to create statistically unpredictable character sequences that are difficult to guess and immune to brute force attacks.
  • Unique passwords: Each password works for a specific account only. Even if one of your passwords is compromised, it doesn’t impact the security of other passwords since they have different, unrelated passwords.

Password vaults also offer some customization options. This is important because websites and systems have varying requirements. For example, you might be able to specify the character length and type when generating a password.

     3. Credential Autofilling

Password vaults use a combination of techniques and protocols to securely auto-fill the username and password on a login page. 

Autofilling information with Cloaked
Autofilling information with Cloaked

Your password vault encrypts your credentials, stores them on the cloud, and keeps syncing the credentials whenever you modify them. They encrypt the data and use synchronization protocols like HTTPS to securely transmit and sync this data across devices. The data remains encrypted during the sync and only authorized devices can decrypt and access it.

A password manager’s browser extension or plugin keeps monitoring the pages you visit. When it finds a website or login page for which it has saved credentials, it detects relevant fields and prompts you to auto-fill the credentials.

Once you allow the vault to fill in the details, it communicates securely with the browser extension and transfers your credentials in an encrypted format to prevent interception.

     4. Multi-Factor Authentication (MFA)

Setting up MFA is like adding extra layers of security to your digital safe–and it means you’ll need more than one key to unlock the safe.

Two-factor authentication (2FA) is generally sufficient in most cases. Have you ever used a time-based one-time password (TOTP) in addition to your password when logging into your bank account? That’s an example of 2FA.

password authentication

2FA combines something you know, such as your password, with something you have access to, such as your phone. This means you can complete 2FA using a one-time password, an authenticator app, or biometrics like fingerprint or facial recognition.

MFA is just an extension of 2FA, where you use more than two layers of verification.

     5. Weak Password Identification

Password vaults can sniff out weak passwords so you can fortify your digital defenses. Vaults use algorithms to check your password’s strength based on factors like length and complexity (combination of letters, numbers, and special characters).

In addition to these basic checks, some password vaults use the following techniques to assess password strength:

  • Pattern recognition: Algorithms scan for patterns commonly found in weak passwords. Sequential numbers, dictionary words, and keyboard patterns.
  • Entropy calculation: Vaults measure the password’s entropy or randomness based on password length and character set analysis. High entropy indicates greater complexity.
  • Database scan: Password vaults compare passwords against known password databases to help you avoid using passwords that were exposed in previous data breaches.

Password vaults score your passwords based on algorithmic assessment. Higher scores indicate greater strength. Many vaults display this score so you can find weak ones and modify them.

Best Password Vaults

If you’re looking for a password vault, here’s a list of the best options:

  • Cloaked: A comprehensive security solution that uses advanced encryption protocols and offers an extensive feature set. Learn more about Cloaked.
  • IronVest: Password vault available as a browser extension and mobile app
  • 1Password: Password vault that supports team collaboration and offers enterprise solutions
  • Dashlane: Password vault with zero-knowledge patented encryption

Password Vaulting Limitations

Some password managers have limitations that allow adversaries to access your credentials. This has led users to get caught in a dilemma between the convenience of password vaulting services and concerns about their security.

The conversation points to an evolving landscape in password management, where trust and security are paramount. Currently, there’s room for improvement in how password vaulting services handle and secure user data.

Being mindful of the limitations of an average password manager is the first step toward protecting your data. When choosing a password vaulting app, investigate how it will protect you against these risks.

Can Password Vaults Be Hacked?

Yes, some password vaults can be hacked. In fact, researchers from the University of York released a study in 2020 analyzing five password managers for security vulnerabilities. The researchers were able to trick two password managers (1Password and LastPass) into revealing a password.

This has led to a growing concern among consumers about the safety of password vaults, but in most cases, users can protect themselves with a little bit of education.

Here are the methods an adversary could use to hack your password vault:

  • Credential stuffing: Cybercriminals use automated tools to try username and password combinations sourced from data breaches on other websites. The idea is to misuse the average user’s tendency to reuse passwords across multiple accounts.
  • Brute force attacks: Hackers use an application that tries a multitude of combinations to gain access to a system. Just using a complex password makes brute force an impractical technique because of the vast number of possible combinations.
  • Vulnerabilities: Adversaries look for vulnerabilities or bugs in the vault’s code, such as flawed encryption algorithms or weakly implemented security protocols, that could allow them to access passwords without authorization.
  • Phishing: Adversaries trick users into sharing their credentials through phishing emails or fake web pages designed similarly to the original ones. When you input credentials, you’re redirected to another page while your credentials are sent to the hacker.
  • Keylogging and spyware: Adversaries get users to install malware that records keystrokes, potentially registering your vault password.
  • Intercepting communication: Hackers intercept the communication between the password vault and its servers. The attackers can do so in various ways, such as:

                 - Capturing data packets using specialized tools and extracting sensitive information

                 - Exploiting weak encryption protocols

                 - Using DNS spoofing to redirect communication from the password vault to servers under their control

Losing the Master Password

Losing your master password can be a big problem. Top password managers offer limited recovery options because they prioritize the security of user data. Even the company that built the password manager doesn’t store your master password and can’t access your data.

Here’s how a password vault may help you regain access:

  • Identity verification: The password vault service may help you regain access through identity verification to confirm that you’re the legitimate owner.
  • Alternative authentication methods: Alternative authentication methods could include backup codes generated when you set up your account or during recovery, verifying an alternative email or phone number connected to your account, or using previously configured MFA methods.

Because the password vault will prioritize security, you won’t get direct access to stored passwords without authenticating your identity through multiple verification layers.

Use the Most Secure Password Vaulting App

Not all password managers you find on the internet are safe, but storing passwords in browser caches isn’t a safe alternative. You need a password manager you can trust.

While you still need to follow best security practices to protect your passwords, a strong password vaulting app can help. Cloaked, ensures your passwords remain in a safe digital space, away from everyone’s reach, including the Cloaked team.

Cloaked uses secure hashing algorithms and encryption ciphers (ECC25519, Argon2, and XSalsa20-Poly1305) to protect your data. The platform also adds an extra layer of security by storing your data on a unique database with unique keys.

No more giving away any personal information. 

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