This is directly from
The Handbook of Applied Cryptography
Alfred J. Menezes, Paul C. van Oorschot and Scott A. Vanstone
Chapter 10, page 390
(v) Salting passwords
To make dictionary attacks less effective, each password, upon initial entry, may be aug-mented with a t-bit random string called a salt (it alters the “flavor” of the password; cf. x10.2.3) before applying the one-way function. Both the hashed password and the salt are
recorded in the password file. When the user subsequently enters a password, the system looks up the salt, and applies the one-way function to the entered password, as altered or augmented by the salt. The difficulty of exhaustive search on any particular user’s pass-word
is unchanged by salting (since the salt is given in cleartext in the password file); how-ever, salting increases the complexity of a dictionary attack against a large set of passwords simultaneously, by requiring the dictionary to contain 2 t variations of each trial password,
implying a larger memory requirement for storing an encrypted dictionary, and correspondingly more time for its preparation. Note that with salting, two users who choose the same password have different entries in the system password file. In some systems, it may be appropriate to use an entity’s userid itself as salt.
Although the entire book is available in PDF at the link I provided above, I highly suggest that anyone interested in crypto add it to their paper library, right next to Bruce Schneier's book.
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