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Are Windows 2000 server passwords checked against a flat file?

Roberta Bragg talks about passwords and encryption and how passwords are checked by individual machines in this piece of expert advice.

If Windows 2000 servers are used in a workgroup situation (no domain) are the passwords checked against a flat file (NT Lan ma.) as opposed to Kerberos checking against a key?
In a workgroup, each computer has a local SAM or password database. It is not a flat file. Passwords within the database are encrypted using the same algorithm whether it's the local database on each computer, or the one in Active Directory. The network algorithms for authentication, however, vary. In a domain, if Windows 2000, XP or 2003 are talking to each other, the preferred algorithm is Kerberos, but, NTLM may be used. In a workgroup, network authentication will always be NTLM. (or NTLMv2 if configured.)

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