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I'd like to use Windows.Security.Credentials.PasswordVault in my desktop app (WPF-based) to securely store a user's password. I managed to access this Windows 10 API using this MSDN article.
I did some experiments and it appears that any data written to PasswordVault from one desktop app (not a native UWP app) can be read from any other desktop app. Even packaging my desktop app with Desktop Bridge technology and thus having a Package Identity does not fix this vulnerability.
Any ideas how to fix that and be able storing the app's data secure from other apps?
UPDATE: It appeared that PasswordVault adds no extra security over DPAPI. The case is closed with a negative result.
(this is from what I can understand of your post)
There is no real way of preventing data access between desktop apps when using these kind of API's http://www.hanselman.com/blog/SavingAndRetrievingBrowserAndOtherPasswords.aspx tells more about it. You'd probably just want to decrypt your information.
memory access restriction is difficult, code executed by the user is always retrievable by the user so it would be difficult to restrict this.
have you considered using the Windows Data Protection API :
https://msdn.microsoft.com/en-us/library/ms995355.aspx
grabbed straight from the source
DPAPI is an easy-to-use service that will benefit developers who must provide protection for sensitive application data, such as passwords and private keys
WDPAPI uses keys generated by the operating system and Triple DES to encrypt/decrypt your data. Which means your application doesn't have to generate these keys, which is always nice.
You could also use the Rfc2898DeriveBytes class, this uses a pseudo-random number generator to decrypt your password. It's safer than most decrypters since there is no practical way to go back from the result back to the password. This is only really useful for verifying the input password and not retrieving it back again. I have never actually used this myself so I would not be able to help you.
https://msdn.microsoft.com/en-us/library/system.security.cryptography.rfc2898derivebytes(v=vs.110).aspx
see also this post which gives a way better explanation than I can.
How to securely save username/password (local)?
If I misunderstood the question in some way, tell me, I will try to update the answer.
NOTE that modern/metro apps do not have this problem, although they still are accessible in other ways.
The hard truth is that storing a password in a desktop application, 100% securely is simply not possible. However, you can get close to 100%.
Regarding your original approach, PasswordVault uses the Credential Locker service which is built into windows to securely store data. Credential Locker is bound to the user's profile. Therefore, storing your data via PasswordVault is essentially equivalent to the master password approach to protecting data, which I talk about in detail further down. Only difference is that the master password in that case is the user's credentials. This allows applications running during the user's session to access the data.
Note: To be clear, I'm strictly talking about storing it in a way that allows you access to the plain text. That is to say, storing it in an encrypted database of any sort, or encrypting it yourself and storing the ciphertext somewhere. This kind of functionality is necessary in programs like password managers, but not in programs that just require some sort of authentication. If this is not a necessity then I strongly recommend hashing the password, ideally per the instructions laid out in this answer by zaph. (Some more information in this excellent post by Thomas Pornin).
If it is a necessity, things get a bit more complicated: If you want to prevent other programs (or users I suppose) from being able to view the plaintext password, then your only real option is to encrypt it. Storing the ciphertext within PasswordVault is optional since, if you use good encryption, your only weak point is someone discovering your key. Therefore the ciphertext itself can be stored anywhere. That brings us to the key itself.
Depending on how many passwords you're actually trying to store for each program instance, you might not have to worry about generating and securely storing a key at all. If you want to store multiple passwords, then you can simply ask the user to input one master password, perform some salting and hashing on that, and use the result as the encryption key for all other passwords. When it is time for decryption, then ask the user to input it again. If you are storing multiple passwords then I strongly urge you to go with this approach. It is the most secure approach possible. For the rest of my post however, I will roll with the assumption that this is not a viable option.
First off I urge you not to have the same key for every installation. Create a new one for every instance of your program, based on securely generated random data. Resist the temptation to "avoid having to store the key" by having it be generated on the fly every time it is needed, based on information about the system. That is just as secure as hardcoding string superSecretKey = "12345"; into your program. It won't take attackers long to figure out the process.
Now, storing it is the real tricky part. A general rule of infosec is the following:
Nothing is secure once you have physical access
So, ideally, nobody would. Storing the encryption keys on a properly secured remote server minimizes the chances of it being recovered by attackers. Entire books have been written regarding server-side security, so I will not discuss this here.
Another good option is to use an HSM (Hardware Security Module). These nifty little devices are built for the job. Accessing the keys stored in an HSM is pretty much impossible. However, this option is only viable if you know for sure that every user's computer has one of these, such as in an enterprise environment.
.Net provides a solution of sorts, via the configuration system. You can store your key in an encrypted section of your app.config. This is often used for protecting connection strings. There are plenty of resources out there on how to do this. I recommend this fantastic blog post, which will tell you most of what you need to know.
The reason I said earlier not to go with simply generating the key on the fly is because, like storing it as a variable in your code, you rely exclusively on obfuscation to keep it secure. The thing about this approach is that it usually doesn't. However, sometimes you have no other option. Enter White Box cryptography.
White box cryptography is essentially obfuscation taken to the extreme. It is meant to be effective even in a white-box scenario, where the attacker both has access to and can modify the bytecode. It is the epitome of security through obscurity. As opposed to mere constant hiding (infosec speak for the string superSecretKey approach) or generating the key when it is needed, white box cryptography essentially relies on generating the cipher itself on the fly.
Entire papers have been written on it, It is difficult to pull off writing a proper implementation, and your mileage may vary. You should only consider this if you really really really want to do this as securely as possible.
Obfuscation however is still obfuscation. All it can really do is slow the attackers down. The final solution I have to offer might seem backwards, but it works: Do not hide the encryption key digitally. Hide it physically. Have the user insert a usb drive when it is time for encryption, (securely) generate a random key, then write it to the usb drive. Then, whenever it is time for decryption, the user only has to put the drive back in, and your program reads the key off that.
This is a bit similar to the master password approach, in that it leaves it up to the user to keep the key safe. However, it has some notable advantages. For instance, this approach allows for a massive encryption key. A key that can fit in a mere 1 megabyte file can take literally billions of years to break via a brute force attack. Plus, if the key ever gets discovered, the user has only themselves to blame.
In summary, see if you can avoid having to store an encryption key. If you can't, avoid storing it locally at all costs. Otherwise, your only option is to make it as hard for hackers to figure it out as possible. No matter how you choose to do that, make sure that every key is different, so even if attackers do find one, the other users' keys are safe.
Only alternative is to encrypt password with your own private key stored somewhere in your code. (Someone can easily disassemble your code and get the key) and then store encrypted password inside PasswordVault, however the only security you have is any app will not have access to password.
This is dual security, in case of compromised machines, attacker can get access to PasswordVault but not your password as they will need one more private key to decrypt the password and that will be hidden somewhere in your code.
To make it more secure, if you leave your private key on your server and expose an API to encrypt and decrypt password before storing in Vault, will make it most secure. I think this is the reason people have moved on to OAuth (storing OAuth token in PasswordVault) etc rather then storing password in vault.
Ideally, I would recommend not storing password, instead get some token from server and save it and use that token for authentication. And store that token in PasswordVault.
It is always possible to push the security, with miscellaneous encryption and storage strategies. Making something harder is only making the data retrieval longer, never impossible. Hence you need to consider the most appropriate level of protection considering execution cost x time (human and machine) and development cost x time aspects.
If I consider strictly your request, I would simply add a layer (class, interface) to cipher your passwords. Best with asymmetrical encryption (and not RSA). Supposing the other softs are not accessing your program data (program, files OR process), this is sufficient. You can use SSH.NET (https://github.com/sshnet/SSH.NET) to achieve this quickly.
If you would like to push the security and give a certain level of protection against binary reverse-engineering (including the private key retrieval), I recommend a small (process limited) encrypted VM (like Docker, https://blogs.msdn.microsoft.com/mvpawardprogram/2015/12/15/getting-started-with-net-and-docker/) based solution such as Denuvo (https://www.denuvo.com/). The encryption is unique per customer and machine based. You'll have to encapsulated you c# program into a c/c++ program (which acts like a container) that will do all the in-memory ciphering-deciphering.
You can implement your own strategy, depending on the kind of investment and warranty you require.
In case your program is a backend program, you can pick the best strategy (the only I really recommend) of all which is to store the private key at the client side, public key at backend side and have local deciphering, all transmitted password would be hence encrypted. I would like to remark that password and keys are actually different strategies to achieve the same goal: checking if the program talks to the right person without knowing the person's identity; I mean this: instead of storing passwords, better store directly public keys.
Revisiting this rather helpful issue and adding a bit of additional information which might be helpful.
My task was to extend a Win32 application that uses passwords to authenticate with an online service with a "save password" functionality. The idea was to protect the password using Windows Hello (UserConsentVerifier). I was under the impression that Windows surely has something comparable to the macOS keychain.
If you use the Windows Credential Manager APIs (CredReadA, CredWriteA), another application can simply enumerate the credentials and if it knows what to look for (the target name), it will be able to read the credential.
I also explored using DPAPI where you are in charge of storing the encrypted blob yourself, typically in a file. Again, there seems to be no way (except obfuscation) to prevent another application from finding and reading that file. Supplying additional entropy to CryptProtectData and CryptUnprotectData again poses the question of where to store the entropy (typically I assume it would be hard-coded and perhaps obfuscated in the application: this is security by obscurity).
As it turns out, neither DPAPI (CryptProtectData, CryptUnprotectData) nor Windows Credential Manager APIs (CredRead, CredWrite) can prevent another application running under the same user from reading a secret.
What I was actually looking for was something like the macOS keychain, which allows applications to store secrets, define ACLs on those secrets, enforce biometric authentication on accessing the secret, and critically, prevents other applications from reading the secrets.
As it turns out, Windows has a PasswordVault which claims to isolate apps from each other, but its only available to UWP apps:
Represents a Credential Locker of credentials. The contents of the locker are specific to the app or service. Apps and services don't have access to credentials associated with other apps or services.
Is there a way for a Win32 Desktop application to access this functionality? I realize that if a user can be brought to install and run a random app, that app could probably mimic the original application and just prompt the user to enter the secret, but still, it's a little disappointing that there is no app-level separation by default.
This question already has answers here:
Closed 12 years ago.
Possible Duplicate:
PHP 2-way encryption: I need to store passwords that can be retrieved
I know that the best practice for storing user passwords is to store only an irreversible hash of the password.
However, I am developing an application where I will need to store a user's login information for another web service -- I'll need to periodically log them in and perform some maintenance tasks. Unfortunately, the service doesn't offer authorization tokens so I (very apprehensively) have to store the passwords in a way that I can access their plain-text values. I don't own or control the service to which I am authenticating, and the only method is to 'borrow' a users username and password and authenticate.
I am planning to AES_ENCRYPT the passwords in the DB, which means that if somebody is somehow able to access the DB they won't be able to get the plaintext. However my code will need to have access to the key to unencrypt them, thus if the entire server is compromised this is no protection and the passwords will be revealed.
Aside from the above-described encryption, are there any best practices or steps I can take to do this as safely as possible?
EDIT
I know that whatever I do, ultimately the passwords must be accessible in plaintext and so a compromised server means the passwords will be revealed, but I am wondering what steps I can do to mitigate my risk. E.G. encrypting the DB protects me in the situation where the DB is compromised but not the entire server. Other similar mitigating steps would be much appreciated.
However, I am developing an application where I will need to store a user's login information for another web service -- I'll need to periodically log them in and perform some maintenance tasks.
OK... I read through the answers and the comments, and about all I can say is I hope you have crack legal team. It sounds to me like the service you are offering is predicated on user trust. It's good that it's a user-controlled switch, and not something being helpfully done behind their backs, but I think you want a really iron clad service agreement on this.
That said, there's a lot of security paranoia you can invoke. You'll have to figure out how much you want to go through based on the harm to your product, your company and users if a break in occurs. Here's thoughts:
Data storage - store the passwords far away from where an attacker can get in. Highly access controlled files, a database on a back end machine, etc. Make any attacker have go to through layers of defense just to get to the place the data is stored. Similarly have network protection like firewalls and up to date security patches. No one thing works in isolation here.
Encryption - any encryption technique is a delaying tactic - one the attacker has your data, they will eventually crack your encryption given an infinite amount of time. So mostly you're aiming to slow them down long enough for the rest of the system to discover you've been hacked, alert your users, and give the users time to change passwords or disable accounts. IMO - either symmetric or assymetric cryptography will work - so long as you store the key securely. Being a PKI person myself, I'd lean towards assymmetric crypto just because I understand it better and know of a number of COTS hardware solutions that make it possible to store my private key extremely securely.
Key storage - your encryption is only as good as your key storage. If the key is sitting right next to the encrypted data, then it stands to reason that the attacker doesn't need to break your crypto, they just use the key. HSM (hardware security modules) are the high end choice for key storage - at the upper ranges these are secure boxes that are tamper proof which both hold your keys and perform crypto for you. At the low end, a USB token or Smart Card could perform the same function. A critical part of this is that ultimately, it's best if you make an admin activate key access on server startup. Otherwise, you end up with a chicken and egg scenario as you try to figure out how to securely store the ultimate password.
Intrusion detection - have a good system in place that has a good chance of raising alarms if you should get hacked. If your password data is compromised, you want to get the word to your users well ahead of any threat.
Audit logging - have really good records of who did what on the system - particularly in the vicinity of your passwords. While you could create a pretty awesome system, the threat of privileged users doing something bad (or dumb) is just as bad as external threats. The typical high end auditing systems track high privilege user behavior in a way that can't be viewed or tampered with by the high privilege user - instead, there's a second "auditor" account that deals only with audit logs and nothing else.
This is a highlight of the high points of system security. My general point is - if you are serious about protecting user passwords, you can't afford to just think about the data. Just encrypting the passwords is not likely to be enough to really protect users and safeguard trust.
The standard way to approach this is to consider the cost of explotation vs. the cost of protection. If both costs are too high for the value of the feature, then you have a good indication that you shouldn't bother doing it...
As you said, your code will eventually need the key and so if the server is compromised, so will be the passwords. There is no way around it.
What you can do is have a very minimal proxy whose only job will be to have the passwords, listen to the requests from your main application, connect to the service in question, and return the response to your application. If that very simple proxy is all that is running on a server then it will be much less likely to be compromised than a complicated application running on a server with many services.
I'm trying to figure out if it is alright to store passwords that are encrypted using the AES algorithm rather than storing passwords that are salted and hashed with SHA1.
The reason I am wondering this is because my company is in the middle of updating our membership system which is included with our proprietary CMS. Currently, we use AES encryption for passwords. This allows us to easily look up Admin passwords when customers call in for support. When we have staff changes, it is policy to change all admin passwords. The password lookup tool allows us to get the new passwords easily and our work flow isn't interupted.
I get the impression that most people think that hashing salted passwords is the more secure way of handling passwords but I can't figure out a way to comply with current company operations when using hashed passwords. And, the corporate cultural shift required to change our password operations probably won't happen unless I can give them some very compelling reasons to hash passwords.
Is a hashed password generally accepted as required versus an encrypted password? Why?
Encrypting passwords with a reversible encryption is of dubious value.
Obviously the lookup program has access to the key. That means you should assume that anyone who has access to the program also has access to the key. If you are paranoid you should also assume that their spouses, significant others, roomates, etc all have access to that key. Also anyone who has ever broken into the network ever in the past (since key was used) also has access to the key.
The problem with using a system like that is you will never know it is broken. Do I have access to the key? Right now? Can I lookup the password at anytime? As soon as you change it I know what it was changed to?
Using salted hash (vs reversible encyrption) presents its own challenges in implementation but you can be assured that stealing the password list is of little value (if properly implemented with a strong algorithm, multiple rounds, min password standards, and random per record salt). Your current system is "feel good encryption". While it may makes management "feel" safe they aren't actually being safe. It is marginally better than storing passwords in plaintext or on a sticky note it is at best a minimal speed bump to a determined attacker. The largest problem is you can never prove you are "safe" and may not have any warning when you are compromised. You could be compromised right now and not know it.
You mean, inside an application which stores passwords for user authentication.
Normally the motivation for hashing them vs storing encrypted is that it prevents someone who has stolen the database or compromised the server from obtaining the passwords.
If you encrypt them with AES, you're clearly going to have to keep the key somewhere, and can't ever change it (unless of course, you decrypt them all and re-encrypt).
If someone compromises the machine, they can obtain the key, as it is necessarily kept (at least) in memory at some time to decrypt the passwords.
It's either that, or use some fancy PKI. AES is a symmetric cipher.
Encrypting the passwords won't really help the application defend its database against any but the most casual attackers (as an attacker MUST be able to obtain the key). Hashing them makes it difficult for the cleartext to be obtained if passwords are strong.
So I have a web application that integrates with several other APIs and services which require authentication. My question is, is it safe to store my authentication credentials in plain text in my source code?
What can I do to store these credentials securely?
I think this is a common problem, so I'd like to see a solution which secures credentials in the answers.
In response to comment: I frequently use PHP, Java, and RoR
I'd like to see some more votes for an answer on this question.
Here's what we do with our passwords.
$db['hostname'] = 'somehost.com'
$db['port'] = 1234;
$config = array();
include '/etc/webapp/db/config.php';
$db['username'] = $config['db']['username'];
$db['password'] = $config['db']['password'];
No one but webserver user has access to /etc/webapp/db/config.php, this way you are protecting the username and password from developers.
The only reason to NOT store the PW in the code is simply because of the configuration issue (i.e. need to change the password and don't want to rebuild/compile the application).
But is the source a "safe" place for "security sensitive" content (like passwords, keys, algorithms). Of course it is.
Obviously security sensitive information needs to be properly secured, but that's a basic truth regardless of the file used. Whether it's a config file, a registry setting, or a .java file or .class file.
From an architecture point of view, it's a bad idea for the reason mentioned above, just like you shouldn't "hard code" any "external" dependencies in your code if you can avoid it.
But sensitive data is sensitive data. Embedding a PW in to a source code file makes that file more sensitive than other source code files, and if that's your practice, I'd consider all source code as sensitive as the password.
It is not to be recommended.
An encrypted web.config would be a more suitable place (but note can't be used with a web farm)
It appears the answer is the following:
Don't put credentials in source code but...
Put credentials in a configuration file
Sanitize log files
Set proper permissions/ownership on configs
Probably more depending on platform...
No, it is not.
Plus, you might want to change your password one day, and probably having yo change the source code may not be the best option.
No. Sometimes it is unavoidable. Better approach is to have an architecture set up where the service will implicitly trust your running code based on another trust. (Such as trusting the machine the code is running on, or trusting the application server that is running the software)
If neither of these are available, it would be perfectly acceptable to write your own trust mechanism, though I would keep it completely separate from the application code. Also, would recommend researching ways to keep passwords out of the hands of predators, even when stored on local machine - remembering that you can't protect anything if someone has control of the physical machine it is on.
If you control the Web server, and maintain it for security updates, then in the source (preferably in a configuration module) or in a configuration file that the source uses is probably best.
If you do not control the Web server (say, you are on a shared or even dedicated server provided by a hosting company), then encryption won't help you very much; if the application can decrypt the credentials on a given host, than the host can be used to decrypt the credentials without your intervention (think root or Administrator looking at the source code, and adapting the decryption routine so that it can be used to read the configuration). This is even more of a possibility if you are using unobfuscated managed code (e.g., JVM or .NET) or a Web scripting language that resides in plaintext on the server (like PHP).
As is usually the case, there is a tradeoff between security and accessibility. I'd think about what threats are the ones you are trying to guard against and come up with a means to protect against the situations that you need. If you're working with data that needs to be secure, you should probably be redacting the database fairly regularly and moving data offline to a firewalled and well-protected database server as soon as it becomes stale on the site. This would include data like social security numbers, billing information, etc., which can be referenced. This would also mean that you'd ideally want to control the servers on your own network which provide billing services or secure data storage.
I prefer to keep them in a separate config file, located somewhere outside the web server's document root.
While this doesn't protect against an attacker subverting my code in such a way that it can be coerced into telling them the password, it does still have an advantage over putting the passwords directly into the code (or any other web-accessible file) in that it eliminates concern over a web server misconfiguration (or bug/exploit) allowing an attacker to download the password-containing file directly.
One approach is to encrypt The passwords before placing the password in config.web
I'm writing this for web service app that receives password, not client:
If you save hashed passsword in source code someone who views the source code won't be able to help himself with that hash.
Your program would receive plain password and hash it and compare both hashes.
That's why we save hashed passwords into databases, not plain text. Because they can't be reversed if someone for example steals db or views it for malicious purposes he won't get all users passwords, only the hashes which are pretty useless to him.
Hashing is 1 way process: it produces same value from same source but you can't compute source value out of hash.
Storing on client: when user enters pass u save it to db/file in plaintext, maybe obfuscate a little but not much u can do to prevent someone who gets a hold of that computer to get that password.
Nobody seems to have mentioned hashing yet - with a strong hash algorithm (ie SHA-2 and not MD5), it should be much safer.
If a hacker has access to the hashes in my DB, he has access to the rest of the information in the DB anyways. So why would he bother trying to decrypt the passwords? Should I be storing the passwords on a different server to the rest of my data? That is the only scenario in which I can envision it being useful.
Sometimes a hacker doesn't get full access to your DB. Sometimes they find a little SQL injection hole or other weakness that someone didn't code correctly, and so they can only do simple things at first like print out database cells one at a time. If they can print out a real password all of a sudden things get much worse.
Things happen: backup tapes are lost, accidentally thrown away, or stolen. A retired system wasn't wiped properly. A breach elsewhere leads to accidental exposure of a database. If a hacker gets access to a snapshot like this he can learn a lot about your system. But if the passwords are still hashed he can't also use the system to do something malicious, like log in as a different user and start changing things.
I've heard that most hacks are an inside job. Better to remove the ability even for people you trust to log in as others.
It's not about just you. Users tend to share passwords across systems. Maybe some day (God forbid) you have a breach that has nothing to do with passwords, but in the course of that breach your authentication tables will be one of the attacker's targets. If you store passwords in plain-text, you have also just compromised user accounts at many other services, and your very bad day just got quite a lot worse.
If you think this kind of thing doesn't happen, go talk to the guys at reddit.
People often use the same username/password for different accounts on other websites (including, e.g., online access to bank accounts).
Once you've discovered this hack and have secured your database, the hacker will still have the ability to login to your user's accounts.
Best security practices suggest:
You should use a unique (userId, password) pair for each account you have. But most people use a single pair for many resources (email, bank, etc). An attacker can steal them from one resource and use them to access another. Hashing the passwords with salt—see http://en.wikipedia.org/wiki/Salt_(cryptography)—prevents this sort of attack.
You should encrypt all sensitive data in your database, not just passwords. Your point that someone might steal your entire DB (or your server) is perfectly valid.
You should separate your web server from your database and any other precious resources, to quarantine an attack to your least valuable asset.
There are business reasons to hash passwords, as well. Remember, hashing means you do not store your users' passwords anywhere on your equipment.
Depending on the laws that apply, you may be required to do this in certain situations.
You greatly reduce your exposure if your data is stolen.
You're safer from social engineering attacks, in which an attacker impersonates a valid user and cajoles an employee into revealing a password. See http://en.wikipedia.org/wiki/Social_engineering_(security).
Should I be storing the passwords on a
different server to the rest of my
data?
This adds complexity to your system, but if it's something you can do it's definitely an improvement.
Note that using authentication servers such as Kerberos, RADIUS, or Windows domain authentication effectively put you passwords on another server.
Because even if you have access to the data, having access to the APPLICATION is actually more important. The Application makes it much easier to manipulate the data, for example.
Hashing the password prevents casual exposure from all eyes.
For example, you may well have the same password across several sites. A quick glance at the DB not only compromises your application, but perhaps several others.
It's just a good, solid practice to hash you passwords.
Mainly because it's nearly trivial to do it well, and the benefits can be very high.
Sometime, you don't know who will be the system administrator. You still want to protect your users from them.. So, by hashing passwords and all important information (such as credit card), you make it really harder for the hacker or administrator. And, I think password should never be written literally. I mean, I used a password since 2 years and I have never seen it written down.. why an administrator that I don't know should see MY password ?!
Using a hashed password prevents the attacker from being able to log into your app even if they know the hash. Your login page asks for the original password, so to log in using it, they'd have to reverse the hash (compute a collision). Using a rainbow table, that's fairly trivial for MD5, for example, which is where salting comes in. Then the attacker needs to know 1) the way you combine the salt and the password (not much security there), 2) the salt (which is likely in the db already) and 3) they have to compute that value for each combination of password and salt. That's a lot more than just computing hashes of common passwords and looking for a match.
When a hacker access your database it does not mean that he can access the procedural code, those procedures can alter databases outside the hacked database boundaries or inclusive can alter other procedures.
By the way now I´m going to ask you something: If a user is hacked and someone has his or her password, how do you make clear that it is not your application or security fault?
If you don't have stored passwords you don't have such responsability!
If an application is to show grade information at the university then having access to the password will allow you to get the grades for that person. If the password also allows you to log into the online course system then you can submit tests as that user.
If the data is even more sensitive, such as credit card numbers or health records, you are open to lawsuits.
Odds are that the more sensitive information may be on a more secured system, behind stronger firewalls, so they may have found a weakness by hacking into the authentication database.
By hashing the password, then those that have access to the authentication database can't see the password and so log into the very sensitive system as a different user.
The whole LinkedIn "scandal" was all about leaked hashed passwords.
As I see it, security isn't about anything other than making data retrieval inconvenient.
And by inconvenient in the ideal case we mean it'll take you millions of compute years to access (ie single CPU trying to guess at password would take on the scale of millions of years).
If you store passwords in cleartext, that takes a total of 0 compute years to access. The LinkedIn scandal would have looked much worse. All you have to do is SELECT * FROM USERS (either via injection or an insider).
People often reuse passwords, so if people learn your password, it means a whole world of data becomes accessible to them (not just their LinkedIn, for example). So it becomes a very personal risk. As a webmaster it's rude not to at least hash passwords: you don't have that much respect for your users to take the basic step of trying to protect their information.
Even if the hashed password can be cracked, you're at least taking the bare minimum step to protect your users.
If he can decrypt the passwords, he can probably get access to your user's accounts on other sites as well (as, no matter how many times we tell people not to re-use passwords, they do). Storing plaintext passwords is a good way to give away all your users' PayPal, eBay & Amazon accounts.