The Type 4 algorithm was designed to be a stronger alternative to the existing Type 5 and Type 7 algorithms, but due to the aforementioned issue not only does it not salt the passwords, but it also goes only through a single iteration of SHA-256 instead of the intended 1,000. In addition to all this, a device running one of these releases loses the capability to create a Type 5 password.
All 15.x versions (based on the Cisco IOS 15 code base) are affected.
Due to a number of other problems, Cisco has decided to introduce a new password type that will implement the original design intended for Type 4 passwords: PBKDF2 with SHA-256, an 80-bit salt, and 1,000 iterations.
According to the advisory, the issue has been discovered and reported by Philipp Schmidt and Jens Steube from the Hashcat Project.
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