The Basic authentication scheme is not a secure method of user authentication, nor does it in any way protect the entity, which is transmitted in clear text across the physical network used as the carrier. HTTP does not prevent additional authentication schemes and encryption mechanisms from being employed to increase security or the addition of enhancements (such as schemes to use one-time passwords) to Basic authentication.
The most serious flaw in Basic authentication is that it results in the essentially clear text transmission of the user's password over the physical network. It is this problem which Digest Authentication attempts to address.
Because Basic authentication involves the clear text transmission of passwords it SHOULD never be used (without enhancements) to protect sensitive or valuable information.
A common use of Basic authentication is for identification purposes -- requiring the user to provide a user name and password as a means of identification, for example, for purposes of gathering accurate usage statistics on a server. When used in this way it is tempting to think that there is no danger in its use if illicit access to the protected documents is not a major concern. This is only correct if the server issues both user name and password to the users and in particular does not allow the user to choose his or her own password. The danger arises because naive users frequently reuse a single password to avoid the task of maintaining multiple passwords.
If a server permits users to select their own passwords, then the threat is not only illicit access to documents on the server but also illicit access to the accounts of all users who have chosen to use their account password. If users are allowed to choose their own password that also means the server must maintain files containing the (presumably encrypted) passwords. Many of these may be the account passwords of users perhaps at distant sites. The owner or administrator of such a system could conceivably incur liability if this information is not maintained in a secure fashion.
Basic Authentication is also vulnerable to spoofing by counterfeit servers. If a user can be led to believe that he is connecting to a host containing information protected by basic authentication when in fact he is connecting to a hostile server or gateway then the attacker can request a password, store it for later use, and feign an error. This type of attack is not possible with Digest Authentication . Server implementers SHOULD guard against the possibility of this sort of counterfeiting by gateways or CGI scripts. In particular it is very dangerous for a server to simply turn over a connection to a gateway since that gateway can then use the persistent connection mechanism to engage in multiple transactions with the client while impersonating the original server in a way that is not detectable by the client.