I think Schneier's suggestion of reducing it to the first letter of each word is vastly preferable because it packs the majority of entropy from random word selection into the least amount of typing.
salmonellaeater is right, Steube misunderstands the comic. The idea of the comic is to pick a small random selection of the 250,000 distinct words in a oxford dictionary, rather than 8 of the 95 letters from all ASCII printable characters. A selection of 3 words has then higher entropy than 8 random characters, because 250,000^3 is a bigger number than 95^8. The question then is, will 3 random words really be easier to remember than 8 ASCII printable characters?
The downside to the Schneier scheme, is that each is a common sentence (low entropy), with a chosen transformation algorithm added. Thus the quality of the password will depend on the number of transformation algorithms, and the quality of each one. If we are to use the one first described to create "tlpWENT2m", we get a password strength like:
Using strictly the first letter, would only do 2x linear increase in entropy over just searching for common sentences. Change any occurrence of common numbers substitutes for words adds (0-2x) entropy increase. Writing one of the words in all caps means 6x increase in entropy. Combined, tlpWENT2m is slightly less secure than "This little piggy went to market" + two [random number below 10] or a single letter at the end.
> Steube was able to crack "momof3g8kids" because he had "momof3g" in his 111 million dict and "8kids" in a smaller dict.
> "The combinator attack got it! It's cool," he said. Then referring to the oft-cited xkcd comic, he added: "This is an answer to the batteryhorsestaple thing."
It sounds to me like he's combining words randomly, not "exploiting common human behavior".
Whereas the xkcd approach is more like m * m * m * m.
In other words, exponentiation > multiplication.
In a sense, yes. The xkcd comic also illustrates this. A common technique to remember a sequence of arbitrary things is to transform the things into concepts or objects, and transform this sequence into a ridiculous story or visual image (the crazier it is, the better it sticks in the mind, plus it's more fun).
If you use words instead of random characters, you get to skip the "transform into concepts or objects" step, as well as you don't need to string as much of them together in a crazy but coherent picture/story.
Of course it's important to build the picture after the words, not the other way around, because then you'd probably lose some entropy again.
There's a list of 7776 words, everyone knows what words are on the list. I suspect that sometimes people re-roll because they don't like a word or don't think they'll remember it. But I don't that that makes much difference.
This is strongly discouraged, and it does matter. The words are supposed to be random, but re-rolling makes them not random.
For example: "and in the swept plains of winter's vale, our hero did beseech the emperor to send for his forces" -- what would be the difficulty in cracking that, given that this isn't a quote from a book or anything, but just a sentence that popped into my mind and seems easy enough to remember?
Take a list of 6^5 words. Roll 5 dice. Take that word from the list. Do this 4 more times. You now have a five-word passphrase like "moire fraud 80 row bernet".
Even if someone knew the exact method and list you did to get that passphrase, there are 28430288029929701376 combinations, giving you over 64 bits of entropy.
Someone has probably tried to rainbow table all those results for MD5. If a core can do 1 billion hashes per second, it would take 900 core-years to build a complete list of all those combinations, which is probably feasible for a small group to put together, but messing with the list just a little bit or adding a 6th word would likely put you past that even for a crappy MD5 hashing.
Some things you don't always need to use from those touch-screen thingies
Steube misunderstands the xkcd comic [1]. There's a really good comment which explains it: "It could be argued that Randall's example of 4 words is too short -- and indeed, for some applications, it is. However for a typical dictionary size, and genuinely random selection, it is massively stronger than "typical" passwords and in fact easily adequte to defeat the above-mentioned attacks." [2]
Emphasis on "genuinely random selection."
[1] https://xkcd.com/936/
[2] http://www.schneier.com/blog/archives/2013/06/a_really_good_...