Bug Description

The encryptClientIp function in encryption.ts has two failure paths that both return the raw, unencrypted client IP address. This plaintext IP is then sent in the mcp-client-ip HTTP header, defeating the purpose of the encryption feature.

Affected Code

File: packages/mcp/src/lib/encryption.ts, lines 14-27

function encryptClientIp(clientIp: string): string {
  if (!validateEncryptionKey(ENCRYPTION_KEY)) {
    console.error("Invalid encryption key format. Must be 64 hex characters.");
    return clientIp; // PATH 1: returns raw IP
  }

  try {
    const iv = randomBytes(16);
    const cipher = createCipheriv(ALGORITHM, Buffer.from(ENCRYPTION_KEY, "hex"), iv);
    let encrypted = cipher.update(clientIp, "utf8", "hex");
    encrypted += cipher.final("hex");
    return iv.toString("hex") + ":" + encrypted;
  } catch (error) {
    console.error("Error encrypting client IP:", error);
    return clientIp; // PATH 2: returns raw IP
  }
}

Call site in generateHeaders:

if (context.clientIp) {
  headers["mcp-client-ip"] = encryptClientIp(context.clientIp);
}

Impact

• Path 1: Operator sets CLIENT_IP_ENCRYPTION_KEY to a malformed value (not 64 hex chars). The console.error is logged, but the header is sent with the plaintext IP. The operator believes IPs are encrypted.
• Path 2: Any runtime crypto error (corrupted key buffer, OpenSSL issue) causes the same plaintext fallback with only a console.error.
• The receiving server has no way to distinguish encrypted from plaintext values — both arrive in the same mcp-client-ip header.

This is a fail-open security behavior: encryption failure silently degrades to no encryption.

Expected Behavior

On encryption failure, the function should either:

1. Return undefined so the header is not set at all (fail-closed), OR
2. Return a clearly-marked placeholder like "ENCRYPTION_FAILED" that the server can detect

Proposed Solution

Option A (recommended — fail-closed):

function encryptClientIp(clientIp: string): string | undefined {
  if (!validateEncryptionKey(ENCRYPTION_KEY)) {
    console.error("Invalid encryption key format. Skipping IP header.");
    return undefined;
  }
  try {
    // ... encryption logic ...
  } catch (error) {
    console.error("Error encrypting client IP:", error);
    return undefined;
  }
}

// Call site:
const encryptedIp = encryptClientIp(context.clientIp);
if (encryptedIp) {
  headers["mcp-client-ip"] = encryptedIp;
}

Option B (fail-open with marker):

return "UNENCRYPTED"; // Server can detect and handle

Note: This is related to but distinct from the recently closed #1366 (which was a docs issue about the default key). This report is specifically about the code-level plaintext fallback behavior.

Happy to submit a PR for this fix.