The first task in setting up CHAP authentication is modifying the /etc/ppp/chap-secrets file. This file contains the CHAP security credentials, including the CHAP secret, that are used to authenticate callers on the link.
UNIX or PAM authentication mechanisms do not work with CHAP. For example, you cannot use the PPP login option as described in How to Create a PAP Credentials Database (Dial-in Server). If your authentication scenario requires PAM or UNIX-style authentication, choose PAP instead.
The next procedure implements CHAP authentication for a dial-in server in a private network. The PPP link is the only connection to the outside world. The only callers who can access the network have been granted permission by managers of the network, possibly including the system administrator.