Resources > What to Know: Microsoft Entra ID is Phasing Out Passwords

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The End of Passwords as We Know Them

Why Microsoft Is Removing Passwords

Passwords are convenient but inherently insecure. They can be stolen, guessed, reused, or shared. And no matter how strong a password policy is, human behaviour and error often undercuts it.

Microsoft lists several key reasons on why they’re making this shift.

• Passwords are vulnerable to phishing, credential stuffing, and brute-force attacks.
• Passwords rely on user memory and management, which leads to weak or reused credentials.
• Even with multi-factor authentication (MFA), passwords still represent an entry point for attackers.

By removing the password as a sign-in option, Microsoft is eliminating one of the most common attack surfaces in enterprise environments and driving organizations toward more secure, passwordless sign-ins.

Introducing Password Scrambling in Microsoft Entra ID

Microsoft’s answer to eliminating passwords is a process called password scrambling.

When passwords are scrambled, they’re replaced with long, random values that are unknown to users and cannot be used for sign-in. Once scrambled, there’s no longer a known reference to the password. Meaning no one, not even the user, can authenticate with it.

In simple terms, scrambled passwords make it impossible for users to sign in using traditional password authentication. Instead, they’re directed to more secure, passwordless options such as Windows Hello for Business, FIDO2 security keys, or Microsoft Authenticator passkeys. This approach dramatically reduces the attack surface and provides stronger protection against credential-based threats.

Microsoft’s Recommended Passwordless Alternatives

To replace passwords, Microsoft recommends adopting one or more phishing-resistant authentication methods supported by Entra ID:

Windows Hello for Business

Uses biometric data (such as facial recognition, fingerprints, or a device-specific PIN) to verify identity. Credentials never leave the device, making it far harder to compromise.

FIDO2 Security Keys

Hardware-based authenticators that store cryptographic credentials securely. These can be used across multiple devices and environments, making them ideal for hybrid workplaces.

Microsoft Authenticator Passkeys

A software-based method that ties a cryptographic credential to the user’s device and Microsoft account. Passkeys work across Windows, Android, and iOS devices and support passwordless access to both Microsoft and third-party apps.

How Organizations Can Transition to Passwordless Authentication

Eliminating passwords requires careful planning and the right technical setup. Microsoft offers different strategies depending on how users are managed, either through an on-premises Active Directory (AD DS) or directly in the cloud.

For Hybrid Users (Synced from On-Premises AD DS)

For organizations syncing users from on-premises Active Directory to Microsoft Entra ID, scrambling should start on-premises.

Because AD DS is the source of authority, passwords must be randomized locally. When these scrambled passwords sync to Entra ID, users lose the ability to authenticate with a password—both in the cloud and on-premises.

Microsoft provides PowerShell scripts to automate password scrambling, ensuring passwords remain random and unusable even after users attempt to reset them.

For Cloud-Only Users

For cloud-only Entra ID accounts, passwords should also be randomized to prevent any form of password-based access.

Admins can use a PowerShell script that generates a 64-character random password and assigns it to each user account. This process can be run routinely to maintain integrity.

If some legacy apps still require password authentication, users can temporarily reset their password via Self-Service Password Reset (SSPR) but these should be scrambled again periodically to reinforce the passwordless model.

What to Disable After Going Fully Passwordless

Once your organization is ready to operate without passwords, Microsoft recommends turning off tools that could allow password recovery or reuse:

• Disable Self-Service Password Reset (SSPR): Prevent users from restoring password access.
• Disable Password Writeback: Stop passwords from syncing back to on-premises Active Directory.
• Remove Password Expiry Policies: Since passwords are no longer in use, traditional password policies become unnecessary.

Challenges and Considerations

Transitioning to passwordless authentication represents a significant shift for most organizations. While the benefits are clear, the path to full implementation can come with a few challenges. Some legacy applications may still rely on password-based logins, making it difficult to completely eliminate passwords right away. Additionally, users may resist the change due to unfamiliarity with new sign-in methods or concerns about adapting to new technologies.

Another common hurdle is device compatibility. Older operating systems and hardware may not fully support modern authentication standards such as FIDO2, requiring IT teams to assess and update their infrastructure before deployment. Because of these potential issues, a gradual rollout is often the best approach. Organizations should begin by testing passwordless sign-ins in controlled groups, gathering feedback, and refining the process before expanding organization-wide. A strong user education and communication plan will also play a crucial role in ensuring a smooth transition.

Benefits of Going Passwordless

The Bigger Picture: Microsoft’s Vision for a Passwordless Future

Microsoft’s push to remove passwords from Entra ID is part of its broader Zero Trust initiative, emphasizing continuous verification over static credentials.

As cyberattacks grow more sophisticated, traditional passwords simply can’t keep up. By enforcing phishing-resistant authentication, Microsoft aims to set a new standard for identity protection across cloud and hybrid environments.

In the coming years, passwordless access is expected to become the default for all Microsoft environments.

Conclusion: Preparing for the Passwordless Era

In this latest Microsoft news update, the company’s decision to eliminate the Microsoft password from Entra ID marks a turning point in enterprise security.

By scrambling passwords and adopting secure alternatives like Windows Hello, FIDO2 keys, and Authenticator passkeys, organizations can reduce cyber risk while improving user experience.

Now is the time to begin your transition. Review Microsoft’s official guidance and assess your hybrid or cloud environment.

Need help? Nutech Digital is a full-service managed IT firm with decades of experience. We help small to medium sized businesses make sense of the technology shaping their operations. Reach out to us to learn more about going passwordless.