Part 1: The Web
In the beginning -- way back in the beginning -- the web was all about open access. Tim Berners-Lee and his colleagues focused on making information available, not on protecting it from unauthorized users.
But as time went on, and as Al Gore took the initiative in liberating the government-run Internet backbone for commercial use (really), the Web became about "e-commerce," and e-commerce required security. SSL matured to ensure that sensitive traffic was encrypted all the way from the client to the server and back, and various schemes emerged to allow user authentication.
The oldest and most common format for web authentication is HTTP Basic authentication. This is what you get when you visit a web site and a little browser window pops up requesting a username and password. Every web browser and every major web server supports some form of this.
From a web design perspective, HTTP Basic has a big disadvantage in that it's implemented entirely by the browser, and can't be customized for each site. As the quality of graphic design improved on the web, designers soon realized that they wanted not a generic little grey box on the screen, but a carefully-designed login page, with logos, disclaimers, and the like, or a discreet login button on the corner of a web page. The combination of HTTP Basic and HTML just didn't allow this.
The result was the rise of form-based authentication. This is what the vast majority of secure web sites use today. As a user, you visit a web page that prompts you for a username and password. If authentication is successful, then under the covers you are granted a unique cookie, which your web browser sends with each subsequent request. As the user you never see this -- it just looks like you logged in and now the site works -- but under the covers it is quite different from Basic.
Both Basic and form-based authentication rely on SSL to create an encrypted tunnel between the client and server. Without that encrypted tunnel, anyone snooping the Internet or the open Wifi at Starbucks can see the passwords go by in the clear. Fortunately, SSL protects against this very well, but sometimes developers neglect to use it, users neglect to ask for it (as most of us do with Facebook), and sometimes the traffic travels over unencrypted links behind the firewall of a large network.
The web community attempted to counter this using HTTP Digest authentication, which encrypts the password using a one-way hash so it's impossible to reverse-engineer even if SSL is not used -- but it still must be implemented by the browser and can't be designed in to a nice UI. It never took off.
For a higher level of security, SSL has long supported two-way authentication, which requires that individual end users request digital certificates for each site they plan to visit and install those signatures on their browsers. The overhead of issuing PKI credentials to end users was enormous and this never took off either.
Part 2: Early APIs
Some early APIs were built right on top of existing web sites built using form-based authentication. The easiest way to implement them was to use the same authentication mechanism, so API developers would create a method called "login" that returns a security token, another method called "logout," and require the security token on every API call.
This approach makes the API easy to tack on top of an existing web app, but it is more work on the client side and hurts API adoption. An administrator can't as easily drive the API from the script without logging in, extracting the security token from the response, making the call, and then logging out.
Other early APIs just use HTTP Basic authentication. It's simple, works with every client (and with every shell script based on "cURL"), but it requires SSL to be used, often leaving it up to the client to "remember" to use it. Still, it's effective as long as the user has the password for the API handy.
Yet others, especially Amazon, decided they wanted to avoid using SSL for performance reasons, but they also wanted to avoid using the uncommon HTTP Digest authentication. (Amazon's S3 is used to store multi-gigabyte files and SSL does make a difference there.) They chose to create their own access control mechanisms based on secret keys and in some cases, digital signatures. The result was a bit of programming for each developer starting out with AWS, but Amazon's services were so useful and cheap that it didn't matter. By now there are numerous libraries to make this process easier.
Part 3: APIs get formal
The first real access control mechanism aimed at the needs of APIs and API developers is OAuth. The idea came from a popular API (Twitter) and a defunct web site (Ma.gnolia). The goal was to make it possible for a Ma.gnolia user to access Twitter without requiring that each user give Ma.gnolia their Twitter password.
The result, OAuth 1.0, is like a "valet key" for an API -- it is a token that gives a single client or web site access to a particular API on behalf of one user. The client or web site can get an OAuth "access token" without ever seeing the user's password because the two web sites do a sort of "credential dance" to exchange the secret token. Once the token is issued, the user can see it or revoke it, thus taking away access from the client or site without requiring a password change.
Since then, OAuth 1.0 has seen a patch (it became 1.0a to fix a security flaw), and an IETF committee is working on OAuth 2.0. This new version includes some important simplifications and a wider range of use cases. OAuth has become the de facto standard for API authentication. (for more see my earlier post on OAuth 1.0 vs. OAuth 2.0)
OAuth is likely to dominate the world of APIs for a long time. With OAuth 2.0, soon API providers and users will have the option of using a simple "bearer token" in conjunction with SSL, or a signed token that can remain secure without further encryption. OAuth 2.0 is flexible enough to be used in the original "web site to API" use case that OAuth 1.0 was designed to handle, but it can also be used for access by mobile devices, where it can be important to be able to remotely revoke the access tokens that might be stored on your phone without going around and changing innumerable passwords.
Still, there remain problems to be solved. What about access for simple management APIs, for instance? Even OAuth 2.0 is cumbersome and when SSL is always in use sometimes a plain old password is sufficient. API providers can and should consider supporting good old Basic authentication alongside OAuth 2.0 if for no other reason than convenience -- as long as SSL and a strong password are required.
What about mobile apps? Is there a way for the server hosting an API for, say, a large bank to ensure that the request is coming from an official application, or from a rogue app that is attempting to "phish" passwords by pretending to be the real thing? Can we do something by combining signed applications with server-side validation, or is a secure app store the only way to protect against mobile malware?
The world of APIs is evolving and there's no doubt that security technology will continue to evolve along with it.