MS-CHAP is the Microsoft version of the Challenge-Handshake Authentication Protocol, CHAP. The protocol exists in two versions, MS-CHAPv1 (defined in RFC 2433) and MS-CHAPv2 (defined in RFC 2759). MS-CHAPv2 was introduced with Windows NT 4.0 SP4 and was added to Windows 98 in the "Windows 98 Dial-Up Networking Security Upgrade Release" and Windows 95 in the "Dial Up Networking 1.3 Performance & Security Update for MS Windows 95" upgrade. Windows Vista dropped support for MS-CHAPv1.
MS-CHAP is used as one authentication option in Microsoft's implementation of the PPTP protocol for virtual private networks. It is also used as an authentication option with RADIUS servers which are used for WiFi security using the WPA-Enterprise protocol. It is further used as the main authentication option of the Protected Extensible Authentication Protocol (PEAP).
Compared with CHAP, MS-CHAP:
MS-CHAPv2 provides mutual authentication between peers by piggybacking a peer challenge on the Response packet and an authenticator response on the Success packet.
Cryptanalysis
Several weaknesses have been found in MS-CHAPv2, some of which severely reduce the complexity of brute-force attacks making them feasible with modern hardware.
MS-CHAP and MS-CHAPv2 uses the same weak 56-bit DES encryption as NTLMv1 to encrypt the NTLM password hash. 56-bit encryption had been well known as weak for years, but CloudCracker now provides a service targeted at cracking this weak DES encryption.