Recently, a new version of DirSync was released that includes synchronization of user password hashes. This avoids the need for users having separate passwords for on-premises login and cloud based login. Prior to this, having the same password required deployment of identity federation servers which is a more significant implementation project. The password hash which is synchronized to the cloud is a one way mathematical computation based on the users password which is not reversible to discover the users plaintext password. Synchronizing the password hash means the user can log into Office 365 using their on-premises password.
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