diff -Nru irssi-0.8.12.orig/src/core/Makefile.am irssi-0.8.12/src/core/Makefile.am
--- irssi-0.8.12.orig/src/core/Makefile.am	2008-07-28 18:32:03.000000000 +0100
+++ irssi-0.8.12/src/core/Makefile.am	2008-07-28 19:15:33.000000000 +0100
@@ -42,6 +42,7 @@
 	servers-setup.c \
 	session.c \
 	settings.c \
+	sha1.c \
 	signals.c \
 	special-vars.c \
 	write-buffer.c
@@ -91,6 +92,7 @@
 	servers-setup.h \
 	session.h \
 	settings.h \
+	sha1.h \
 	signals.h \
 	special-vars.h \
 	window-item-def.h \
diff -Nru irssi-0.8.12.orig/src/core/Makefile.in irssi-0.8.12/src/core/Makefile.in
--- irssi-0.8.12.orig/src/core/Makefile.in	2008-07-28 18:32:03.000000000 +0100
+++ irssi-0.8.12/src/core/Makefile.in	2008-07-28 19:15:33.000000000 +0100
@@ -65,7 +65,7 @@
 	nickmatch-cache.$(OBJEXT) pidwait.$(OBJEXT) queries.$(OBJEXT) \
 	rawlog.$(OBJEXT) recode.$(OBJEXT) servers.$(OBJEXT) \
 	servers-reconnect.$(OBJEXT) servers-setup.$(OBJEXT) \
-	session.$(OBJEXT) settings.$(OBJEXT) signals.$(OBJEXT) \
+	session.$(OBJEXT) settings.$(OBJEXT) sha1.$(OBJEXT) signals.$(OBJEXT) \
 	special-vars.$(OBJEXT) write-buffer.$(OBJEXT)
 libcore_a_OBJECTS = $(am_libcore_a_OBJECTS)
 DEFAULT_INCLUDES = -I. -I$(srcdir) -I$(top_builddir)
@@ -290,6 +290,7 @@
 	servers-setup.c \
 	session.c \
 	settings.c \
+	sha1.c \
 	signals.c \
 	special-vars.c \
 	write-buffer.c
@@ -339,6 +340,7 @@
 	servers-setup.h \
 	session.h \
 	settings.h \
+	sha1.h \
 	signals.h \
 	special-vars.h \
 	window-item-def.h \
@@ -426,6 +428,7 @@
 @AMDEP_TRUE@@am__include@ @am__quote@./$(DEPDIR)/servers.Po@am__quote@
 @AMDEP_TRUE@@am__include@ @am__quote@./$(DEPDIR)/session.Po@am__quote@
 @AMDEP_TRUE@@am__include@ @am__quote@./$(DEPDIR)/settings.Po@am__quote@
+@AMDEP_TRUE@@am__include@ @am__quote@./$(DEPDIR)/sha1.Po@am__quote@
 @AMDEP_TRUE@@am__include@ @am__quote@./$(DEPDIR)/signals.Po@am__quote@
 @AMDEP_TRUE@@am__include@ @am__quote@./$(DEPDIR)/special-vars.Po@am__quote@
 @AMDEP_TRUE@@am__include@ @am__quote@./$(DEPDIR)/write-buffer.Po@am__quote@
diff -Nru irssi-0.8.12.orig/src/core/settings.c irssi-0.8.12/src/core/settings.c
--- irssi-0.8.12.orig/src/core/settings.c	2008-07-28 18:32:03.000000000 +0100
+++ irssi-0.8.12/src/core/settings.c	2008-07-28 19:15:33.000000000 +0100
@@ -28,6 +28,8 @@
 #include "recode.h"
 #include "settings.h"
 #include "default-config.h"
+#include "sha1.h"
+#include "fe-common/core/printtext.h"
 
 #include <signal.h>
 
@@ -329,7 +330,24 @@
 
 void settings_set_str(const char *key, const char *value)
 {
-        iconfig_node_set_str(settings_get_node(key), key, value);
+	if (!strcmp(key, "irssiproxy_password") && settings_get_bool("irssiproxy_sha_passwords")) {
+		SHA1Context sha;
+		SHA1Reset(&sha);
+		SHA1Input(&sha, (const unsigned char *) value, strlen(value));
+		if (SHA1Result(&sha)) {
+			char hashed_password[41];
+			snprintf(hashed_password, 41, "%08x%08x%08x%08x%08x",
+					sha.Message_Digest[0], sha.Message_Digest[1],
+					sha.Message_Digest[2], sha.Message_Digest[3],
+					sha.Message_Digest[4]);
+			iconfig_node_set_str(settings_get_node(key), key, hashed_password);
+		} else {
+			iconfig_node_set_str(settings_get_node(key), key, value);
+			printtext(NULL, NULL, MSGLEVEL_CLIENTNOTICE, "SHA1 value could not be computed, plain-text password used.");
+		}
+	} else {
+	        iconfig_node_set_str(settings_get_node(key), key, value);
+	}
 }
 
 void settings_set_int(const char *key, int value)
diff -Nru irssi-0.8.12.orig/src/core/sha1.c irssi-0.8.12/src/core/sha1.c
--- irssi-0.8.12.orig/src/core/sha1.c	1970-01-01 01:00:00.000000000 +0100
+++ irssi-0.8.12/src/core/sha1.c	2004-03-27 13:00:34.000000000 +0000
@@ -0,0 +1,371 @@
+/*
+ *  sha1.c
+ *
+ *	Copyright (C) 1998
+ *	Paul E. Jones <paulej@arid.us>
+ *	All Rights Reserved
+ *
+ *****************************************************************************
+ *	$Id: sha1.c,v 1.2 2004/03/27 18:00:33 paulej Exp $
+ *****************************************************************************
+ *
+ *  Description:
+ *      This file implements the Secure Hashing Standard as defined
+ *      in FIPS PUB 180-1 published April 17, 1995.
+ *
+ *      The Secure Hashing Standard, which uses the Secure Hashing
+ *      Algorithm (SHA), produces a 160-bit message digest for a
+ *      given data stream.  In theory, it is highly improbable that
+ *      two messages will produce the same message digest.  Therefore,
+ *      this algorithm can serve as a means of providing a "fingerprint"
+ *      for a message.
+ *
+ *  Portability Issues:
+ *      SHA-1 is defined in terms of 32-bit "words".  This code was
+ *      written with the expectation that the processor has at least
+ *      a 32-bit machine word size.  If the machine word size is larger,
+ *      the code should still function properly.  One caveat to that
+ *      is that the input functions taking characters and character
+ *      arrays assume that only 8 bits of information are stored in each
+ *      character.
+ *
+ *  Caveats:
+ *      SHA-1 is designed to work with messages less than 2^64 bits
+ *      long. Although SHA-1 allows a message digest to be generated for
+ *      messages of any number of bits less than 2^64, this
+ *      implementation only works with messages with a length that is a
+ *      multiple of the size of an 8-bit character.
+ *
+ */
+
+#include "sha1.h"
+
+/*
+ *  Define the circular shift macro
+ */
+#define SHA1CircularShift(bits,word) \
+                ((((word) << (bits)) & 0xFFFFFFFF) | \
+                ((word) >> (32-(bits))))
+
+/* Function prototypes */
+void SHA1ProcessMessageBlock(SHA1Context *);
+void SHA1PadMessage(SHA1Context *);
+
+/*  
+ *  SHA1Reset
+ *
+ *  Description:
+ *      This function will initialize the SHA1Context in preparation
+ *      for computing a new message digest.
+ *
+ *  Parameters:
+ *      context: [in/out]
+ *          The context to reset.
+ *
+ *  Returns:
+ *      Nothing.
+ *
+ *  Comments:
+ *
+ */
+void SHA1Reset(SHA1Context *context)
+{
+    context->Length_Low             = 0;
+    context->Length_High            = 0;
+    context->Message_Block_Index    = 0;
+
+    context->Message_Digest[0]      = 0x67452301;
+    context->Message_Digest[1]      = 0xEFCDAB89;
+    context->Message_Digest[2]      = 0x98BADCFE;
+    context->Message_Digest[3]      = 0x10325476;
+    context->Message_Digest[4]      = 0xC3D2E1F0;
+
+    context->Computed   = 0;
+    context->Corrupted  = 0;
+}
+
+/*  
+ *  SHA1Result
+ *
+ *  Description:
+ *      This function will return the 160-bit message digest into the
+ *      Message_Digest array within the SHA1Context provided
+ *
+ *  Parameters:
+ *      context: [in/out]
+ *          The context to use to calculate the SHA-1 hash.
+ *
+ *  Returns:
+ *      1 if successful, 0 if it failed.
+ *
+ *  Comments:
+ *
+ */
+int SHA1Result(SHA1Context *context)
+{
+
+    if (context->Corrupted)
+    {
+        return 0;
+    }
+
+    if (!context->Computed)
+    {
+        SHA1PadMessage(context);
+        context->Computed = 1;
+    }
+
+    return 1;
+}
+
+/*  
+ *  SHA1Input
+ *
+ *  Description:
+ *      This function accepts an array of octets as the next portion of
+ *      the message.
+ *
+ *  Parameters:
+ *      context: [in/out]
+ *          The SHA-1 context to update
+ *      message_array: [in]
+ *          An array of characters representing the next portion of the
+ *          message.
+ *      length: [in]
+ *          The length of the message in message_array
+ *
+ *  Returns:
+ *      Nothing.
+ *
+ *  Comments:
+ *
+ */
+void SHA1Input(     SHA1Context         *context,
+                    const unsigned char *message_array,
+                    unsigned            length)
+{
+    if (!length)
+    {
+        return;
+    }
+
+    if (context->Computed || context->Corrupted)
+    {
+        context->Corrupted = 1;
+        return;
+    }
+
+    while(length-- && !context->Corrupted)
+    {
+        context->Message_Block[context->Message_Block_Index++] =
+                                                (*message_array & 0xFF);
+
+        context->Length_Low += 8;
+        /* Force it to 32 bits */
+        context->Length_Low &= 0xFFFFFFFF;
+        if (context->Length_Low == 0)
+        {
+            context->Length_High++;
+            /* Force it to 32 bits */
+            context->Length_High &= 0xFFFFFFFF;
+            if (context->Length_High == 0)
+            {
+                /* Message is too long */
+                context->Corrupted = 1;
+            }
+        }
+
+        if (context->Message_Block_Index == 64)
+        {
+            SHA1ProcessMessageBlock(context);
+        }
+
+        message_array++;
+    }
+}
+
+/*  
+ *  SHA1ProcessMessageBlock
+ *
+ *  Description:
+ *      This function will process the next 512 bits of the message
+ *      stored in the Message_Block array.
+ *
+ *  Parameters:
+ *      None.
+ *
+ *  Returns:
+ *      Nothing.
+ *
+ *  Comments:
+ *      Many of the variable names in the SHAContext, especially the
+ *      single character names, were used because those were the names
+ *      used in the publication.
+ *         
+ *
+ */
+void SHA1ProcessMessageBlock(SHA1Context *context)
+{
+    const unsigned K[] =            /* Constants defined in SHA-1   */      
+    {
+        0x5A827999,
+        0x6ED9EBA1,
+        0x8F1BBCDC,
+        0xCA62C1D6
+    };
+    int         t;                  /* Loop counter                 */
+    unsigned    temp;               /* Temporary word value         */
+    unsigned    W[80];              /* Word sequence                */
+    unsigned    A, B, C, D, E;      /* Word buffers                 */
+
+    /*
+     *  Initialize the first 16 words in the array W
+     */
+    for(t = 0; t < 16; t++)
+    {
+        W[t] = ((unsigned) context->Message_Block[t * 4]) << 24;
+        W[t] |= ((unsigned) context->Message_Block[t * 4 + 1]) << 16;
+        W[t] |= ((unsigned) context->Message_Block[t * 4 + 2]) << 8;
+        W[t] |= ((unsigned) context->Message_Block[t * 4 + 3]);
+    }
+
+    for(t = 16; t < 80; t++)
+    {
+       W[t] = SHA1CircularShift(1,W[t-3] ^ W[t-8] ^ W[t-14] ^ W[t-16]);
+    }
+
+    A = context->Message_Digest[0];
+    B = context->Message_Digest[1];
+    C = context->Message_Digest[2];
+    D = context->Message_Digest[3];
+    E = context->Message_Digest[4];
+
+    for(t = 0; t < 20; t++)
+    {
+        temp =  SHA1CircularShift(5,A) +
+                ((B & C) | ((~B) & D)) + E + W[t] + K[0];
+        temp &= 0xFFFFFFFF;
+        E = D;
+        D = C;
+        C = SHA1CircularShift(30,B);
+        B = A;
+        A = temp;
+    }
+
+    for(t = 20; t < 40; t++)
+    {
+        temp = SHA1CircularShift(5,A) + (B ^ C ^ D) + E + W[t] + K[1];
+        temp &= 0xFFFFFFFF;
+        E = D;
+        D = C;
+        C = SHA1CircularShift(30,B);
+        B = A;
+        A = temp;
+    }
+
+    for(t = 40; t < 60; t++)
+    {
+        temp = SHA1CircularShift(5,A) +
+               ((B & C) | (B & D) | (C & D)) + E + W[t] + K[2];
+        temp &= 0xFFFFFFFF;
+        E = D;
+        D = C;
+        C = SHA1CircularShift(30,B);
+        B = A;
+        A = temp;
+    }
+
+    for(t = 60; t < 80; t++)
+    {
+        temp = SHA1CircularShift(5,A) + (B ^ C ^ D) + E + W[t] + K[3];
+        temp &= 0xFFFFFFFF;
+        E = D;
+        D = C;
+        C = SHA1CircularShift(30,B);
+        B = A;
+        A = temp;
+    }
+
+    context->Message_Digest[0] =
+                        (context->Message_Digest[0] + A) & 0xFFFFFFFF;
+    context->Message_Digest[1] =
+                        (context->Message_Digest[1] + B) & 0xFFFFFFFF;
+    context->Message_Digest[2] =
+                        (context->Message_Digest[2] + C) & 0xFFFFFFFF;
+    context->Message_Digest[3] =
+                        (context->Message_Digest[3] + D) & 0xFFFFFFFF;
+    context->Message_Digest[4] =
+                        (context->Message_Digest[4] + E) & 0xFFFFFFFF;
+
+    context->Message_Block_Index = 0;
+}
+
+/*  
+ *  SHA1PadMessage
+ *
+ *  Description:
+ *      According to the standard, the message must be padded to an even
+ *      512 bits.  The first padding bit must be a '1'.  The last 64
+ *      bits represent the length of the original message.  All bits in
+ *      between should be 0.  This function will pad the message
+ *      according to those rules by filling the Message_Block array
+ *      accordingly.  It will also call SHA1ProcessMessageBlock()
+ *      appropriately.  When it returns, it can be assumed that the
+ *      message digest has been computed.
+ *
+ *  Parameters:
+ *      context: [in/out]
+ *          The context to pad
+ *
+ *  Returns:
+ *      Nothing.
+ *
+ *  Comments:
+ *
+ */
+void SHA1PadMessage(SHA1Context *context)
+{
+    /*
+     *  Check to see if the current message block is too small to hold
+     *  the initial padding bits and length.  If so, we will pad the
+     *  block, process it, and then continue padding into a second
+     *  block.
+     */
+    if (context->Message_Block_Index > 55)
+    {
+        context->Message_Block[context->Message_Block_Index++] = 0x80;
+        while(context->Message_Block_Index < 64)
+        {
+            context->Message_Block[context->Message_Block_Index++] = 0;
+        }
+
+        SHA1ProcessMessageBlock(context);
+
+        while(context->Message_Block_Index < 56)
+        {
+            context->Message_Block[context->Message_Block_Index++] = 0;
+        }
+    }
+    else
+    {
+        context->Message_Block[context->Message_Block_Index++] = 0x80;
+        while(context->Message_Block_Index < 56)
+        {
+            context->Message_Block[context->Message_Block_Index++] = 0;
+        }
+    }
+
+    /*
+     *  Store the message length as the last 8 octets
+     */
+    context->Message_Block[56] = (context->Length_High >> 24) & 0xFF;
+    context->Message_Block[57] = (context->Length_High >> 16) & 0xFF;
+    context->Message_Block[58] = (context->Length_High >> 8) & 0xFF;
+    context->Message_Block[59] = (context->Length_High) & 0xFF;
+    context->Message_Block[60] = (context->Length_Low >> 24) & 0xFF;
+    context->Message_Block[61] = (context->Length_Low >> 16) & 0xFF;
+    context->Message_Block[62] = (context->Length_Low >> 8) & 0xFF;
+    context->Message_Block[63] = (context->Length_Low) & 0xFF;
+
+    SHA1ProcessMessageBlock(context);
+}
diff -Nru irssi-0.8.12.orig/src/core/sha1.h irssi-0.8.12/src/core/sha1.h
--- irssi-0.8.12.orig/src/core/sha1.h	1970-01-01 01:00:00.000000000 +0100
+++ irssi-0.8.12/src/core/sha1.h	2004-03-27 13:00:34.000000000 +0000
@@ -0,0 +1,54 @@
+/*
+ *  sha1.h
+ *
+ *	Copyright (C) 1998
+ *	Paul E. Jones <paulej@arid.us>
+ *	All Rights Reserved
+ *
+ *****************************************************************************
+ *	$Id: sha1.h,v 1.2 2004/03/27 18:00:33 paulej Exp $
+ *****************************************************************************
+ *
+ *  Description:
+ *      This class implements the Secure Hashing Standard as defined
+ *      in FIPS PUB 180-1 published April 17, 1995.
+ *
+ *      Many of the variable names in the SHA1Context, especially the
+ *      single character names, were used because those were the names
+ *      used in the publication.
+ *
+ *      Please read the file sha1.c for more information.
+ *
+ */
+
+#ifndef _SHA1_H_
+#define _SHA1_H_
+
+/* 
+ *  This structure will hold context information for the hashing
+ *  operation
+ */
+typedef struct SHA1Context
+{
+    unsigned Message_Digest[5]; /* Message Digest (output)          */
+
+    unsigned Length_Low;        /* Message length in bits           */
+    unsigned Length_High;       /* Message length in bits           */
+
+    unsigned char Message_Block[64]; /* 512-bit message blocks      */
+    int Message_Block_Index;    /* Index into message block array   */
+
+    int Computed;               /* Is the digest computed?          */
+    int Corrupted;              /* Is the message digest corruped?  */
+} SHA1Context;
+
+/*
+ *  Function Prototypes
+ */
+void SHA1Reset(SHA1Context *);
+int SHA1Result(SHA1Context *);
+void SHA1Input( SHA1Context *,
+                const unsigned char *,
+                unsigned);
+
+#endif
diff -Nru irssi-0.8.12.orig/src/irc/proxy/listen.c irssi-0.8.12/src/irc/proxy/listen.c
--- irssi-0.8.12.orig/src/irc/proxy/listen.c	2008-07-28 18:32:03.000000000 +0100
+++ irssi-0.8.12/src/irc/proxy/listen.c	2008-07-28 19:15:33.000000000 +0100
@@ -27,6 +27,7 @@
 
 #include "irc.h"
 #include "irc-channels.h"
+#include "sha1.h"
 
 #include "fe-common/core/printtext.h" /* FIXME: evil. need to do fe-proxy */
 
@@ -107,7 +108,24 @@
 	password = settings_get_str("irssiproxy_password");
 
 	if (password != NULL && strcmp(cmd, "PASS") == 0) {
-		if (strcmp(password, args) == 0)
+		int pass_comp_ret = -1;
+		if (!settings_get_bool("irssiproxy_sha_passwords"))
+			pass_comp_ret = strcmp(password, args);
+		else {
+			SHA1Context sha;
+			SHA1Reset(&sha);
+			SHA1Input(&sha, (const unsigned char *) args, strlen(args));
+			if (SHA1Result(&sha)) {
+				char hashed_args[41];
+				snprintf(hashed_args, 41, "%08x%08x%08x%08x%08x",
+						sha.Message_Digest[0], sha.Message_Digest[1],
+						sha.Message_Digest[2], sha.Message_Digest[3],
+						sha.Message_Digest[4]);
+				pass_comp_ret = strcasecmp(password, hashed_args);
+			}
+		}
+
+		if (pass_comp_ret == 0)
 			client->pass_sent = TRUE;
 		else {
 			/* wrong password! */
diff -Nru irssi-0.8.12.orig/src/irc/proxy/proxy.c irssi-0.8.12/src/irc/proxy/proxy.c
--- irssi-0.8.12.orig/src/irc/proxy/proxy.c	2008-07-28 18:32:03.000000000 +0100
+++ irssi-0.8.12/src/irc/proxy/proxy.c	2008-07-28 19:15:33.000000000 +0100
@@ -28,6 +28,7 @@
 	settings_add_str("irssiproxy", "irssiproxy_ports", "");
 	settings_add_str("irssiproxy", "irssiproxy_password", "");
 	settings_add_str("irssiproxy", "irssiproxy_bind", "");
+	settings_add_bool("irssiproxy", "irssiproxy_sha_passwords", FALSE);
 
 	if (*settings_get_str("irssiproxy_password") == '\0') {
 		/* no password - bad idea! */