API authentication (OAuth, JWT, API keys) in HLD - System Design Guide

Problem Statement

APIs exposed to the internet face risks of unauthorized access, data breaches, and misuse. Without a robust authentication mechanism, attackers can impersonate users or services, leading to data theft, service disruption, or unauthorized actions.

Solution

API authentication ensures that every request comes from a verified source by requiring credentials or tokens. OAuth delegates user authorization securely without sharing passwords, JWT provides a compact token that carries user identity and claims, and API keys offer a simple secret token to identify and control client access.

Architecture

Client App

(User Agent)

→API Gateway

↓

Auth Provider

Auth Provider

This diagram shows a client requesting access through an API Gateway that verifies authentication tokens with an Auth Provider before forwarding requests to the backend.

Trade-offs

✓ Pros

→

OAuth allows secure delegated access without exposing user credentials.

→

JWT tokens are stateless, reducing server load by avoiding session storage.

→

API keys are simple to implement and easy to distribute for service-to-service calls.

✗ Cons

→

OAuth flows can be complex to implement and require careful token management.

→

JWT tokens, if not properly secured, can be intercepted and reused (replay attacks).

→

API keys lack fine-grained user identity and are vulnerable if leaked.

Use OAuth when user consent and delegated access are needed, JWT for scalable stateless authentication in distributed systems, and API keys for simple service authentication or internal APIs.

Avoid OAuth for simple internal services without user context, JWT when token revocation is critical and complex, and API keys for public APIs exposed to untrusted clients.

Real World Examples

Google

Uses OAuth 2.0 to allow third-party apps to access user data securely without sharing passwords.

Netflix

Uses JWT tokens to authenticate users across distributed microservices without centralized session storage.

Stripe

Uses API keys to authenticate service-to-service API calls securely and track usage.

Alternatives

Basic Authentication

Sends username and password with each request encoded in base64 without token exchange.

Use when: Use only for simple, low-risk internal APIs or during early development phases.

Session-based Authentication

Stores user session state on the server and uses cookies to maintain authentication.

Use when: Choose when server-side session control and easy token revocation are priorities.

Summary

API authentication prevents unauthorized access by verifying client identity using tokens or keys.

OAuth, JWT, and API keys each serve different use cases balancing security, complexity, and scalability.

Choosing the right method depends on user context, system scale, and security requirements.

Practice

1. Which of the following is the primary purpose of API authentication?

easy

A. To verify the identity of the client accessing the API

B. To encrypt the data sent between client and server

C. To improve the speed of API responses

D. To log all API requests for analytics

Solution

1. Step 1: Understand the role of authentication

   Authentication is about confirming who is making the request, not about encryption or speed.

2. Step 2: Identify the correct purpose

   Verifying the client's identity ensures only authorized users access the API.

3. Final Answer:

   To verify the identity of the client accessing the API -> Option A

4. Quick Check:

   Authentication = Verify identity [OK]

Hint: Authentication means confirming who you are [OK]

Common Mistakes:

• Confusing authentication with encryption
• Thinking authentication speeds up API
• Mixing authentication with logging

2. Which of the following is the correct format of a JWT token?

easy

A. header.payload.signature

B. username:password

C. api_key=12345

D. token|timestamp|user

Solution

1. Step 1: Recall JWT structure

   A JWT token consists of three parts separated by dots: header, payload, and signature.

2. Step 2: Match the correct format

   Only the format with three dot-separated parts matches JWT.

3. Final Answer:

   header.payload.signature -> Option A

4. Quick Check:

   JWT = header.payload.signature [OK]

Hint: JWT always has three parts separated by dots [OK]

Common Mistakes:

• Confusing JWT with basic auth format
• Using equal signs instead of dots
• Mixing API key format with JWT

3. Given this OAuth flow: A client requests an access token using a refresh token. Which response indicates a successful token refresh?

medium

A. {"refresh_token": "xyz789"}

B. {"error": "invalid_grant"}

C. {"access_token": null}

D. {"access_token": "abc123", "expires_in": 3600}

Solution

1. Step 1: Understand OAuth token refresh response

   A successful refresh returns a new access token and expiry time.

2. Step 2: Identify the success response

   {"access_token": "abc123", "expires_in": 3600} contains a valid access token and expiry, indicating success.

3. Final Answer:

   {"access_token": "abc123", "expires_in": 3600} -> Option D

4. Quick Check:

   Success = new access token returned [OK]

Hint: Success returns new access token, not error or null [OK]

Common Mistakes:

• Confusing error response with success
• Expecting refresh token in response
• Assuming null access token means success

4. A developer uses an API key in the URL query string for authentication but notices security warnings. What is the main issue?

medium

A. API keys cannot be used for authentication

B. API keys must be encrypted with RSA

C. API keys in URLs can be logged or leaked easily

D. API keys expire too quickly

Solution

1. Step 1: Analyze API key usage in URLs

   URLs are often logged by servers, browsers, and proxies, risking key exposure.

2. Step 2: Identify the security risk

   Embedding API keys in URLs can leak them unintentionally, causing security warnings.

3. Final Answer:

   API keys in URLs can be logged or leaked easily -> Option C

4. Quick Check:

   API key in URL = risk of leakage [OK]

Hint: Never put API keys in URLs to avoid leaks [OK]

Common Mistakes:

• Thinking API keys must be encrypted always
• Believing API keys can't authenticate
• Assuming keys expire too fast

5. You design an API that uses JWT for authentication. To improve security, which combination is best practice?

hard

A. Store JWTs in localStorage and never expire them

B. Use short-lived JWTs with HTTPS and validate signature on each request

C. Send JWTs in URL query parameters for easy access

D. Use JWTs without signature to reduce overhead

Solution

1. Step 1: Identify secure JWT handling practices

   Short-lived tokens reduce risk if stolen; HTTPS protects data in transit; signature validation ensures token integrity.

2. Step 2: Evaluate options for security

   Use short-lived JWTs with HTTPS and validate signature on each request follows all best practices; others expose security risks like token theft or tampering.

3. Final Answer:

   Use short-lived JWTs with HTTPS and validate signature on each request -> Option B

4. Quick Check:

   Secure JWT = short life + HTTPS + signature check [OK]

Hint: Short life + HTTPS + signature check = secure JWT [OK]

Common Mistakes:

• Storing JWTs insecurely in localStorage
• Sending tokens in URLs risking leaks
• Skipping signature validation