Smart contracts are now at the forefront of Blockchain technology. They serve almost every industry segment with a wide range of applications and transaction use cases. Smart contracts are being used in a variety of industries, ranging from finance and IoT to supply chains and music.
However, there may be situations when security flaws become apparent, which hackers or cybercriminals can exploit to further harm a company’s smart contract. These attacks can result in revenue loss and much more. To prevent such attacks, it is critical to understand how smart contract security functions as well as how to properly implement it and other aspects of securing a smart contract-based platform against cyberattacks and hackers . So let’s dig in.
What is a Smart Contract Audit ?
Before we get into auditing, let’s define a smart contract. To facilitate and verify financial transactions, smart contracts monitor the movement of things and intellectual property. Because smart contracts involve financial transactions, it is necessary to focus on smart contract security.
The auditing of a project examines the smart contract in order to protect the money invested in it. Because all blockchain transactions are irreversible, there is no way to recover funds once the hacker withdraws from contracts. As a result, the auditor examines the code within smart contracts, assisting developers in identifying flaws and correcting them in order to avoid significant financial loss.
How does it function?
The steps below explain how smart contracts function:
Specific contract
The terms and conditions are agreed upon by both parties and then integrated into the smart contracts.
A chain of events
The events are variables in a smart contract that execute when the conditions for triggering specific circumstances are met.
Value exchange
After the execution, the value, such as money or information, is transferred to the other parties involved.
Settlement
The information and results of value transfer are saved as records on the blockchain that created the smart contract. To be embedded on a specific blockchain, all smart contracts require a specific P2P network. The Ethereum network is a top priority for almost every smart contract developer because it has a large number of miners worldwide, making Ethereum the most popular cryptocurrency.
Let’s look at why a smart contract audit is important for business.
Why is a smart contract audit important?
One of the most common issues with deploying smart contracts is security, and minor coding errors can result in large amounts of money being stolen from smart contracts. As a result of the irreversible nature of smart contract deployment, businesses are taking greater care of it. Therefore smart contact auditing is required for every blockchain contract deployment.
Let’s look at how good smart contract auditing can help businesses have a great experience with smart contracts:
Avoid costly mistakes
Auditing code earlier in the development life cycle helps you avoid fund loss after deployment while also assisting in the elimination of all flaws within the code.
Prevent security breaches
When writing or changing codes, auditing helps to keep track of any security flaws that smart contract developers may have overlooked.
Greater ownership
A smart contract security audit examines all variables to help avoid execution, so that only the smart contract owner, not hackers, can execute the contracts.
Analytical Reports
The auditor provides an overall summary of the smart contracts, including vulnerabilities and other flaws in the code, to assist developers in fixing them.
Professional advice
The auditors manually inspect your code for potential security flaws in the smart contract. They will also assist you in improving them by making suggestions and recommendations for that particular weakness and areas for improvement.
What are the processes for smart contract audit?
The following are the steps for ensuring the security of smart contracts
Code design models are being collected
Auditors collect code specifications and examine their architecture to ensure that third-party smart contracts can be integrated. By collecting code specifications and architectural drawings, smart contract auditors can better understand the project’s goal and scope.
Run the unit test
The auditors run the test cases for each smart contract after collecting the court design models. The auditing tools are either manual or automatic, ensuring that the unit test cases contain the overall smart contract code and that no part of the code is missed.
Determine the auditing approach
Auditors test smart contracts with a manual or automatic approach to improve their efficiency. Manual auditing, on the other hand, assists testers in detecting attacks like front running.
Preparing a test report
After completion of the audit, the auditors draft code flaws discovered during the audit and submit them to the developer teams for correction of each bug in the code.
Make the final audit report
After smart contract developers have fixed the bugs, the auditor creates a final report that includes a record of all the issues and actions taken to resolve all of the issues within smart contracts.
Types of Smart Contract Audit
Internal auditing
It implies assembling an internal team of security experts to test projects for flaws. Without a doubt, this could be the first line of defense for your project. In addition, unlike an external audit, there is no need to plan an audit that can be performed on a regular basis. However, maintaining a full team of security experts can be costly.
External auditing
It refers to the process of outsourcing smart contract auditing to a third party unrelated to project development. External auditing gives your smart contract a new dimension. The external audit team is a specialized group of security experts who provide an unbiased view of your project. In addition, hiring an outsider is usually less expensive than maintaining a team of security professionals.
Benefits of Smart Contract Audits
Smart contract implementation is a frequent source of concern for blockchain enterprises. An attack, once initiated, cannot be reversed due to its irreversible nature. Furthermore, due to security flaws in smart contracts, you risk losing the entire contract and its assets.
The benefits of a smart contract audit are as follows:
- A security audit identifies major systemic flaws in your project and helps you avoid costly mistakes. Code auditing early in the development lifecycle can help to avoid potentially fatal flaws after launch.
- It is critical to build trust with your investors and users. An audit serves as a security stamp, adding another layer of protection to your project.
- Security audits are essential for developing risk assessment plans and mitigation strategies for organizations that deal with sensitive and confidential information about individuals.
- An audit will build a hack-proof wall around your project, protecting it from any potential threats.
- Auditing not only detects but also optimizes code errors for performance.
What are the types of projects required for smart contract auditing?
Businesses are legitimately concerned about the viability of their projects because smart contract deployment is irreversible. You also risk losing the entire contract and all associated assets due to smart contract security flaws. The projects listed below must endure a smart contract audit.
Crowdsales/Token Contracts
With expert Token smart contract audits across major protocols and languages such as C++, Solidity, and JavaScript, you can launch a crowd sale to sell your tokens.
Defi projects
In 2022, Defi alone was responsible for more than 90% of all crypto hacks. It is preferable to use Defi audits to secure complex systems, such as those that use smart contracts. An interim audit can assist in securing smart contracts like dYdx, and compound.
DApps
For safe deployment on a blockchain platform, a dApp audit is required. The backend of a DApp, like any other web application, is implemented using a set of codes known as a smart contract, which requires a thorough security audit to ensure it is free of vulnerabilities.
NFTs and the Marketplace
NFTs thrive on self-sufficient platforms that allow users to trade their digital assets. The fact that these platforms own the private keys to all assets in their domain demonstrates the value of uncompromised security.
How can a Smart contract be secured ?
A smart contract can be secured against threats and weaknesses in the following ways:
Follow the best security measures
The top companies in this sector have established some of the best security measures that they adhere to. When writing your code, make sure to stick to these standards. It will become more secure.
Perform periodic audits and pentests
Even if your smart contract is flawless and secure, hackers will always find a way to exploit any potential security flaws. Pentesting and security audits help you find potential security flaws in your system and give you time to fix them before attackers try to take advantage of them and attack your platform.
Follow the security check list for blockchains
It is always a smart idea to adhere to well-researched and practical checklists for the security of your blockchain-based apps. Sticking with multifactor authentication, enforcing IAM control, utilizing SIEM, and other measures are a few of these.
Practice running automated security scans
Run automated security scans as much as possible to improve your chances of identifying coding errors that could lead to security flaws and preventing various attacks.
Critical vulnerabilities in smart contracts
You must check all of the standard smart contract security issues when deploying the smart contract:
The execution of smart contracts by crypto miners is vulnerable to manipulation. When the smart contract logic is dependent on the current time for execution and meeting the predetermined goals, the manipulation happens.
Incorrect function visibility
Anyone with access to the function’s visibility of smart contracts can immediately destroy the contract. When developers forget to define the visibility of a private function, the possibility of gaining access to it increases.
Reentrancy attacks
Another issue that happens when a smart contract function makes an external call to another untrusted contract is reentrancy. When a smart contract developer has an uncaring attitude while developing smart contracts, reentrancy attacks occur.
Spelling mistakes
Sometimes compilers are unable to detect spelling mistakes in functions during programming, resulting in the declaration of functions being declared public rather than private, allowing anyone to call that function. A Solidity compiler is required to compile the code written in the Solidity language.
Exceptions handled incorrectly
Solidity makes an exception in a variety of situations. If these exceptions are not properly handled, the smart contract may be susceptible to malicious user attacks, resulting in the rollback of the transaction involved in smart contract execution.
Final Thoughts
One of the most popular blockchain technologies today is the smart contract. It enables you to create ideal protection for your agreements and ensure their flawless execution. A smart contract audit will allow you to ensure that the system is operating properly at the software development stage. It is the key to build trust with your partners and having confidence that everything is under control.