If the exchange isn't authenticated, then Eve can read everything by modifying the traffic (not just observing it). Eve just needs to insert herself in between

If the exchange isn't authenticated, then Eve can read everything by modifying the traffic (not just observing it). Eve just needs to insert herself in between Alice and Bob, intercept and stop all direct messages between them, and then do her own DH handshake with each one: Bob starts handshake with Alice: Bob -> Alice Eve intercepts and finishes handshake, claiming to be Alice: Bob <-> Eve Alice Eve starts and completes handshake with Alice, claiming to be Bob: Bob <-> Eve <-> Alice And now, Bob and Alice think they're sending messages to each other, but actually they're sending messages to Eve, which she can read and then forward-on so that they don't notice the difference. Unless Bob and Alice can authenticate the person they exchange keys with, the whole exchange can be subverted. This and similar attacks is why cryptographers strongly believe now that authentication is inseparable from encryption and that the encryption should basically never be offered independently (which wasn't properly understood back in the 80s and early 90s, hence crappy protocols like PGP-email where authentication is a optional plugin).