This article discusses the (in)security of Flash Player's crossdomain or cross-domain-policy mechanism and why it is against P2P. Anyone who has worked with Flash Player's network (URLLoader, Socket, etc) to implement a protocol would know the problem and pain that Flash Player causes due to it (broken) crossdomain security.
The problem: A programmable content downloaded from site1 running in user's browser should need explicit permission to connect to or use content from another site2. Otherwise, a Flash application may randomly connect to or use content from any other site without user's knowledge and pose security risks.
The real problem: The real problem is in the way Flash Player tries to solve the above problem. If a Flash application is downloaded from site1, and wants to access or connect to another site2, then that site2 must give explicit permission using a web accessible http://site2/crossdomain.xml or in-line cross-domain-policy response in the TCP connection. The crossdomain.xml file lists all the other domains (such as site1) whose Flash applications are allowed to connect here, and also lists all the ports to which they can connect. There are options to give wild-card (*) for domains and ports. Thus, only if site2 trusts site1, will it allow site1 to connect.
The first problem with this approach is the trust model: Flash Player asks site2 instead of the user for permission. This means user still does not have control what other sites the Flash application connects to; if site1 used wild-card domains then any application can connect to it; and admins of site1 and site2 must co-ordinate and collaborate. In most real deployment, this means that site1 and site2 are owned by the same entity and the deployment builds a false sense of closed walled garden of client-server applications.
The second problem is that it is very easy to work around: if site1 is wants to use or connect to site2, but site2 does not trust site1, then site1 can install a connection proxy on its site1 and have the Flash application connect to site2 via this proxy on site1. So it does not really protect site2 from access from any third-party Flash application -- i.e., there is no closed walled garden for site2. What it actually means is that if site2 has a content or service then anybody can build a Flash application to access that content or service as long as he can host a proxy on the Internet. You just need _one_ person in the whole Internet with good bandwidth and an open proxy to potentially break the crossdomain trust model of _all_ the Flash applications.
The third problem is that it assumes Flash Player binary will not be reverse engineered: This is the worst sense of security in the literature. When a Flash application is downloaded from site1 by Flash Player, and wants to make connection to a another site2, it just checks the URL from where the Flash application was downloaded. If the URL contains the domain of site2, then usually the crossdomain check is not done, but if the URL does not contain site2, then it first gets crossdomain.xml file. If some person is able to hack and modify the URL variable inside Flash Player or in the transit on non-secure HTTP, then the Flash Player will effectively ignore the crossdomain check.
The fourth problem is the way it has evolved: The initial implementations of crossdomain policy was broken, with lots of ways to work around. With newer implementations of Flash Player some of these problems have been fixed. However, that means the older mechanism is deprecated and newer mechanism no longer works with older. Concrete example of the problem follows. Should an application downloaded from http://site1/p/app.swf be allowed to connect to site1:5222 (non-HTTP port), or to http://site1 or http://site1/q/second.swf? If yes, then public hosting of personal web pages effectively open up all the Flash applications of all the hosted users on that server. So why not define a meta-policy at the top level http://site1 which controls everything else? How can site2 allow only one application from site1 but not other to connect? How can site2 allow only applications that are signed by site2 to connect but not others, even if those applications are hosted on other sites? No answer!
The fifth problem is that it depends on other unsecured mechanisms: HTTP and DNS. I won't describe details on these, but it would have been nicer if the security was based on code signing or standard authentication mechanisms instead of comparing the hostname from the HTTP URL.
The sixth problem is its incompatibility with existing systems: When implementing a custom non-HTTP protocol, the Flash Player sends the first request as <policy-file-request/> on the connected socket. What if the service does not understand this request? Well use meta-policy. In that case for it to work, the meta-policy needs to be served from say, 843. What if another server is present on the machine on port 843? Or what if you want to add handling of this policy-file-request in your own service protocol? In my personal experience getting this in an XMPP server was a nightmare. What if Flash Player puts a nul character after its request? You cannot control the request or response for policy-file from ActionScript because it happens automatically in Flash Player before a socket is actually connected in the ActionScript.
The solution: In the context of open services and/or open network and/or P2P, the crossdomain is a problem rather than a solution. If site2 has hosted an open service, it should not restrict anybody to build applications to connect to site2. Thus site2 should put a crossdomain.xml with wild-card domains and ports. If site1 has a built a Flash application for an open service, the application should be allowed to connect to any service that follows the protocol as long as the user approves the connection. Thus site1 should build Flash application with correct user authentication, and then proxy the connection via site1's proxy to the site2's service instead of having it connect directly to site2. This allows site1 and site2 to operate independent of each other as long as they implement a common service protocol, e.g., XMPP or P2P-SIP.
The real solution: A correct security implementation in Flash Player should have done something like the following:
1. When the Flash application tries to connect to another new site, ask the user (similar to the camera and microphone security settings) if he wants to allow the connection. Also give an option to remember the approval if needed.
2. Allow site2 to sign a Flash application, and require that only signed Flash application with so-and-so root certificate should be allowed to connect to site2.
Beyond these any site should be free to implement its own authentication mechanism.