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+# Shared Key Authentication for Local MCP Servers
+
+## Problem Statement
+
+Local ToolHive deployments bind MCP servers to localhost (`127.0.0.1`) for network-level security, but have no authentication layer. While localhost binding prevents remote access, customers want defense-in-depth protection against:
+
+- Malicious local processes connecting to open localhost ports
+- Port forwarding or SSH tunneling accidentally exposing endpoints
+- Privilege escalation attacks targeting unauthenticated local services
+- Compliance requirements mandating authentication even for localhost
+
+Current authentication options (OIDC, local user auth) require external identity providers or manual password management, making them unsuitable for single-user local deployments.
+
+## Goals
+
+- Provide lightweight authentication for localhost MCP server deployments
+- Require zero or minimal configuration from users
+- Leverage existing ToolHive infrastructure (OS keychain, middleware, stdio bridge)
+- Work transparently with the `thv proxy stdio` bridge used by MCP clients
+- Maintain backward compatibility (opt-in feature)
+
+## Non-Goals
+
+- Replace network isolation or container-based security
+- Support multi-user local deployments (use OIDC instead)
+- Protect against root/administrator access or OS keychain compromise
+- Store credentials in configuration files
+
+## Proposed Solution
+
+Implement a shared key authentication middleware that generates unique cryptographic keys per MCP server workload, stores them in the OS keychain, and validates them on incoming requests.
+
+### Architecture
+
+```
+┌─────────────────────────────────────────────────────────────┐
+│                     MCP Client                               │
+│                 (Claude Desktop, etc.)                       │
+└──────────────────────┬──────────────────────────────────────┘
+                       │ stdio
+                       ↓
+┌─────────────────────────────────────────────────────────────┐
+│              thv proxy stdio Bridge                          │
+│  • Reads shared key from OS keychain                         │
+│  • Injects X-ToolHive-Auth header in HTTP requests          │
+└──────────────────────┬──────────────────────────────────────┘
+                       │ HTTP + X-ToolHive-Auth header
+                       ↓
+┌─────────────────────────────────────────────────────────────┐
+│              ToolHive HTTP Proxy                             │
+│  • Shared Key Auth Middleware validates header              │
+│  • Constant-time comparison with env variable               │
+│  • Other middleware (Parser, Authz, Audit)                  │
+└──────────────────────┬──────────────────────────────────────┘
+                       │ Forwarded request
+                       ↓
+┌─────────────────────────────────────────────────────────────┐
+│              MCP Server Container                            │
+│  • Receives TOOLHIVE_SHARED_KEY env variable                 │
+└─────────────────────────────────────────────────────────────┘
+```
+
+### Key Components
+
+**1. Key Generation and Storage** (`pkg/auth/sharedkey/`)
+- Generate cryptographically-secure 32-byte keys using `crypto/rand`
+- Store in OS keychain via existing encrypted secrets provider
+- Key naming: `workload:<workload-name>:shared-key`
+- Lifecycle: Generate on deployment, delete on workload removal
+
+**2. Shared Key Authentication Middleware** (`pkg/auth/sharedkey/middleware.go`)
+- Implements standard `types.Middleware` interface
+- Validates `X-ToolHive-Auth` header against `TOOLHIVE_SHARED_KEY` environment variable
+- Uses `crypto/subtle.ConstantTimeCompare` to prevent timing attacks
+- Returns `401 Unauthorized` for missing/invalid keys
+- Adds identity to context for audit trail
+
+**3. Workload Integration** (`pkg/workloads/manager.go`)
+- Generate and store shared key when `SharedKeyAuth.Enabled` is set in RunConfig
+- Inject key into container and proxy via `TOOLHIVE_SHARED_KEY` environment variable
+- Configure middleware chain automatically
+- Clean up key on workload deletion
+
+**4. Stdio Bridge Enhancement** (`cmd/thv/app/proxy_stdio.go`)
+- Retrieve shared key from secrets provider on startup
+- Inject `X-ToolHive-Auth` header in all HTTP requests via custom transport wrapper
+- Handle 401 responses with informative error messages
+
+**5. RunConfig Extension** (`pkg/runner/config.go`)
+
+```go
+type SharedKeyAuthConfig struct {
+    Enabled bool `json:"enabled"`
+    KeyRotationDays int `json:"keyRotationDays,omitempty"` // 0 = disabled
+}
+
+// Add to RunConfig struct
+SharedKeyAuth *SharedKeyAuthConfig `json:"sharedKeyAuth,omitempty"`
+```
+
+## High-Level Design
+
+### Request Flow
+
+1. **Workload Deployment**: User runs `thv run my-server --shared-key-auth`
+2. **Key Generation**: Workload manager generates 32-byte random key
+3. **Key Storage**: Key stored as `workload:my-server:shared-key` in OS keychain
+4. **Key Injection**: Key injected via `TOOLHIVE_SHARED_KEY` environment variable to container and proxy
+5. **Middleware Configuration**: Shared key auth middleware added to chain
+6. **Client Configuration**: MCP client configured to use `thv proxy stdio my-server`
+
+### Authentication Flow
+
+1. **Client Request**: MCP client sends JSON-RPC over stdio to `thv proxy stdio`
+2. **Key Retrieval**: Stdio bridge retrieves key from OS keychain
+3. **Header Injection**: Bridge adds `X-ToolHive-Auth: <key>` to HTTP request
+4. **Validation**: Middleware validates header against environment variable
+5. **Forwarding**: On success, request forwarded to MCP server container
+6. **Rejection**: On failure, return `401 Unauthorized`
+
+### Security Properties
+
+- **Key Strength**: 32 bytes (256 bits), base64-encoded
+- **Key Generation**: Crypto-secure random via `crypto/rand`
+- **Storage**: AES-256-GCM encrypted in OS keychain (existing provider)
+- **Comparison**: Constant-time to prevent timing attacks
+- **Uniqueness**: Independent key per workload
+- **Lifecycle**: Keys deleted with workload
+
+## Usage Examples
+
+### Basic Usage
+
+```bash
+# Enable shared key authentication
+thv run my-server --shared-key-auth
+
+# ToolHive automatically:
+# 1. Generates secure key
+# 2. Stores in OS keychain
+# 3. Configures middleware
+# 4. Updates client config
+```
+
+### With Other Security Features
+
+```bash
+# Combine with authorization and audit
+thv run my-server --shared-key-auth \
+  --authz-config authz.yaml \
+  --audit-config audit.yaml
+```
+
+### Debugging
+
+```bash
+# Verbose mode
+thv proxy stdio my-server --verbose
+
+# Inspect key
+thv secret get workload:my-server:shared-key
+```
+
+## Operational Considerations
+
+### Key Lifecycle
+
+**Generation**: Automatic on deployment with `--shared-key-auth` flag
+**Storage**: OS keychain via encrypted secrets provider
+**Deletion**: Automatic on `thv rm my-server`
+
+### Backward Compatibility
+
+- Opt-in feature via flag or RunConfig
+- Existing workloads continue working without changes
+- No breaking changes to configurations
+- Gradual migration: enable per-workload incrementally
+
+### Multi-Workload Scenarios
+
+- Each workload has unique key
+- Keys identified by workload name
+- Stdio bridge automatically selects correct key
+- Group operations work transparently
+
+## Security Considerations
+
+### Threat Model
+
+**Protected Against**:
+- Unauthorized local process connections
+- Port scanning attacks
+- Accidental credential exposure in config files
+- Replay attacks (keys are workload-scoped)
+
+**Not Protected Against**:
+- Root/administrator access to keychain
+- Process memory inspection
+- Physical machine access
+- Compromised OS keychain
+
+### Defense in Depth
+
+Shared key authentication adds a layer to existing security:
+
+1. Network isolation (localhost binding)
+2. Container isolation
+3. **Shared key authentication** ← New layer
+4. Authorization (Cedar policies)
+5. Audit logging
+
+Each layer provides independent protection.
+
+## Alternatives Considered
+
+### Certificate-Based Authentication (mTLS)
+
+**Pros**: Industry-standard, strong crypto
+**Cons**: Complex (certificate generation, validation, expiry), TLS infrastructure overhead, overkill for localhost
+**Decision**: Rejected due to complexity
+
+### Unix Domain Sockets
+
+**Pros**: Filesystem-based permissions, OS-level access control
+**Cons**: Not cross-platform (Windows), breaks HTTP architecture, requires significant changes
+**Decision**: Rejected due to platform limitations
+
+### API Keys in Config Files
+
+**Pros**: Simple implementation, easy debugging
+**Cons**: Plaintext storage, git commit risk, no leverage of existing secrets infrastructure
+**Decision**: Rejected due to poor security properties
+
+### Time-Based One-Time Passwords (TOTP)
+
+**Pros**: Strong authentication, industry-standard
+**Cons**: Time synchronization complexity, poor UX for automated clients, overkill for localhost
+**Decision**: Rejected due to complexity and poor UX
+
+## Implementation Plan
+
+### Phase 1: Core Infrastructure
+- Create `pkg/auth/sharedkey/` package
+- Implement key generation and storage
+- Implement shared key authentication middleware
+- Add middleware factory registration
+- Extend RunConfig schema
+
+### Phase 2: Workload Integration
+- Modify workloads manager for key lifecycle
+- Add CLI flag `--shared-key-auth`
+- Configure middleware chain automatically
+- Implement key cleanup on deletion
+
+### Phase 3: Stdio Bridge Enhancement
+- Enhance `thv proxy stdio` to retrieve keys
+- Implement header injection in HTTP transport
+- Add error handling for auth failures
+- Update client configuration generation
+
+### Phase 4: Testing and Documentation
+- Unit tests for middleware and key management
+- Integration tests for end-to-end flows
+- Security testing (timing attacks, etc.)
+- Update architecture documentation
+- Create user guide
+