The origin of the term is somewhat unclear, but one story is that it can be traced back to one of the traditional remedies for joint pain and inflammation that was brought to the US in the nineteenth century by Chinese immigrants. The fat from Chinese water snakes is high in eicosapentaenic acid (EPA), which has been shown to have some medicinal properties, so there may be some basis for believing that the traditional remedy actually had useful effects.
Like the effects of many medications, however, the benefits from the traditional snake oil were subtle and varied significantly from person to person, making it difficult to rigorously prove the effectiveness of the remedy.
The fat of American rattlesnakes has a much lower concentration of EPA, however, so that when copies of the traditional remedy were made in the American West using local ingredients they turned out to be less effective than the original. Consumers could not distinguish between the two types of products, a fact that was quickly exploited by unscrupulous merchants who sold the ineffective snake oil to unsuspecting customers.
Eventually this behaviour became so widespread that the term snake oil became generalised to other products, ones that made claims of effectiveness that could not easily be substantiated by consumers and should thus be suspected of being false or misleading.
Whether this is the accurate history of the term or little more than a folk etymology, the connection to cryptography is fairly clear. Some products that provide little or no protection against a skilled adversary are sold as providing a high level of security, and most users of cryptography cannot tell the difference between secure and non-secure versions of the technology.
It seems that cryptography actually has many properties in common with snake oil, so it may be accurate to say that although cryptography may not actually be snake oil, it is very much like snake oil in some ways. And this observation is not limited to the unconventional techniques that are often labelled as such; it also includes cryptographic technologies that have withstood significant scrutiny by industry experts.
Two factors made it easy for unscrupulous vendors of ineffective snake oil to sell their product to unsuspecting customers: it was difficult for customers to distinguish between effective and ineffective versions of the product and the seller of the snake oil was also the person providing the medical advice to his customers. This situation made it extremely tempting for vendors to cheat, a temptation that many were unable to overcome.
This is very similar to the situation that we still see today. Providers of car repairs and medical services both recommend purchases to their customers as well as provide what is purchased. Even after a purchase, though, it is not always clear that you really needed it. Your car may have continued to operate without a particular repair, or you might have recovered from an illness without the medication that your doctor prescribed for you.
The temptation to cheat can be significant in these cases, and some studies have suggested that both car mechanics and doctors recommend a significant amount of services that their customers do not really need. Could cryptography fall into the same category?
Economists divide goods into three types: search goods, experience goods and credence goods. Search goods have properties that are easy to check before you consume them. If you are in the market for a red car, for example, it is easy to check if a potential purchase is really red. Very few, if any, information security products fall into this category.
Experience goods have properties that are not obvious before you buy, but have properties that are easy to verify after you consume them. If you are looking for a car with a certain fuel efficiency, perhaps getting at least 35 miles per gallon under your typical driving conditions, you cannot tell this by looking at the car itself (although this is why laws mandate this information be provided to consumers), but you can easily test it.
Many security products are probably experience goods. You cannot tell before you deploy it whether or not antivirus software or an intrusion detection system (IDS) will really protect your network, for example, but you can observe warning messages and review the logs of the products after they have been deployed to verify that they are actually working.
Credence goods have properties that cannot easily be checked, either before or after they are consumed. Organically grown produce and meat from animals raised in humane conditions are examples of credence goods; it is very difficult to verify these particular properties, even after you consume them.
Many medicines, including the historical snake oil, are also credence goods, because it is difficult to tell if your recovery was really due to the medication, a placebo effect, or even simply your body recovering on its own.
Products that implement cryptography are probably credence goods. It requires expensive and uncommon skills to verify that data is really being protected by the use of cryptography, and most people cannot easily distinguish between very weak and very strong cryptography. Even after you use cryptography, you are never quite sure that it is protecting you like it is supposed to do.
It is always possible that a clever adversary could develop an attack that lets him defeat the cryptography that you are using, and he could then carry out this attack, perhaps reading encrypted messages, and you would have absolutely no idea that he was doing it.
Products cannot always be classified as purely search goods, experience goods or credence goods, and real products often have aspects of each category. Cars have some search characteristics, like their colour, and some experience characteristics, like their fuel efficiency.
Similarly, information security products can have aspects of more than one category. We can easily review its logs to verify that a deployed IDS is stopping some attacks on our network, so it has some experience characteristics. At the same time, the trade-off between Type I and Type II errors that you need to make for an IDS means that a deployed IDS is probably also missing some attacks on your network that you will never be informed of.
The fact that this rate of missed attacks may be acceptably low although we cannot actually verify it also gives IDS systems some credence characteristics.
On the other hand, cryptographic products seem to have many characteristics of credence goods and few characteristics of other types. You certainly cannot tell before you test it that such a product will operate as advertised, so there are probably no characteristics of search goods in these products. And because it is expensive and difficult to verify that the encryption provides strong protection to information or that a digital signature is really difficult to forge, even after it is used, cryptographic products show more characteristics of credence goods instead of experience goods.
This uncertainty in quality that is characteristic of credence goods can lead to unusual results: prices that are lower than expected and are fairly uniform, even in the face of significant quality differences.
If consumers of a product cannot easily distinguish between high-quality and low-quality goods, even after they have consumed the product, we should expect that vendors cannot easily differentiate their products from competing products. In this case, we should expect prices of competing products to be roughly the same.
Consumers will not be aware of the deficiencies in low-quality products, so producers of low-quality products will tend to overcharge for them. Similarly, competitive pressures will keep down the price of high-quality products. George Akerlof first described this situation in 1970 in his classic paper 'The Market for "Lemons": Quality Uncertainty and the Market Mechanism', and eventually won the Nobel Prize for Economics in 2001 for his work in this area.
In the worst of these situations, the low-quality products will actually drive the high-quality products from the market as vendors of the high-quality products refuse to sell their products at the low price that the market forces upon them. Standards like Security Standards for Cryptographic Modules (FIPS 140-2) are designed to avoid such market failures and provide an indicator to customers that they are buying high-quality cryptography.
Such products are guaranteed to be the modern equivalent of snake oil made from Chinese water snakes.
