What are Smart Contract Security Audits?

Blockchain technology and smart contracts are truly revolutionary since they can address many problems for everyone, not just a few people. As a result, many industries have undoubtedly been transformed by blockchain technology. However, even though blockchain technology is well-known for its security due to its distributed database and decentralized nature, the applications built on it via smart contracts may not be as secure as expected.

Even though the primary aim of blockchain technology is to protect data integrity for cryptocurrency, they are now commonly utilized in organizations for smart contracts, online transaction management, asset record management, and data security, and this does not mean that the applications that run on it are secure.

Because all blockchain transactions are final and decentralized, funds taken cannot be recovered.

However, the hacks and weaknesses of some well-known blockchain applications have resulted in significant setbacks for blockchain’s long-term development.

As a result, conducting a blockchain security audit is gaining traction in industries and businesses that use blockchain as software to ensure the integrity and availability of the information are not exposed to attacks.

Hence, because of the widespread adoption of blockchain technology, a discussion on blockchain security auditing has become unavoidable.

What is a Security Audit?

A security audit is a procedure for verifying system functionality and identifying vulnerabilities, instabilities, and flaws that allow or encourage hacker intrusions, execution errors, and other issues. Also, a security audit is a check that methodically examines the security of an organization’s information system by evaluating how well it meets a set of criteria. Security audits aid in ensuring that the business is secure and that confidential information is appropriately maintained and managed.

Security Audit in the Context of Blockchain and Smart Contract:

Security audits in blockchains consist of a peer assessment of a smart contract or blockchain code to detect potential security vulnerabilities or flaws. This implies that the audit process for smart contracts focuses on the code used to underwrite the smart contract’s terms and conditions. As a result, the smart contract developer can quickly uncover vulnerabilities and problems detected using such audits before smart contracts are launched.

These contracts are generally written in the Solidity programming language and accessible via GitHub. Security audits of smart contracts are pretty popular in the Decentralized Finance (DeFi) ecosystem as DeFi projects are majorly built on smart contracts and are expected to handle millions of dollars in blockchain transactions.

Smart contract audits are usually performed by third-party authorities to confirm the code’s authenticity, validity, and proper assessment. However, potential developers can also hire expert smart contract auditors to conduct their audits.

However, before carrying out the operation of developing a smart contract code, it is critical to thoroughly test the code. Because it is impossible to change or update the smart contract’s code once it has been uploaded to the blockchain. Uploading the smart contract code without performing the essential audits can result in challenging scenarios such as discrepancies in the contract’s performance. As a result, you may be vulnerable to data theft or permanent data loss.

Importance of Smart Contracts Audits:

Smart contract audits are critical for many cryptocurrency users when investing in new DeFi ventures. It has become a prerequisite for projects that wish to be considered seriously. Hence, one of the most pressing problems for smart contract implementation is security. Inefficiency, security, and abuse concerns can result in significant additional expenses when implementing smart contracts on a blockchain network. Furthermore, with large sums of money being traded or held in smart contracts, they become tempting targets for ruthless hacking assaults.

Because of the immutability of smart contracts, industries and businesses are apprehensive about their deployment. Furthermore, you risk losing the entire contract and its related assets due to security flaws in smart contracts. As a result, smart contract auditing has become a crucial requirement in the current era for improving code optimization, smart contract performance, and increasing purse security protection against hacking assaults.

Steps to Audit a Smart Contract:

A smart contract audit follows a very consistent procedure among audit providers. With so many significant advantages to smart contract security, it’s critical to understand how to swiftly audit a smart contract.

  1. Define the audit’s goal: The project’s general architecture defines the proposed project description and the smart contract. The audit providers benefit from identifying the project goal when creating and implementing code. It is preferable not to conduct an audit than to do one without a clear purpose in mind. However, this causes confusion, consumes time and effort, and produces no measurable benefits. As a result, to avoid becoming stuck in a directionless cycle of a blockchain security audit, always specify your audit goals before commencing the process.
  2. Identify associated data flow of the smart contract: When performing a Blockchain smart contract audit, you must first secure the source code version. This ensures that the auditing process is transparent. Moreover, this phase allows you to distinguish between the previously audited version and any new changes you make to the code.
  3. Run a test and Identify potential risk: Blockchain applications contain nodes and APIs that can communicate over private and public networks. As the interacting entities in the Blockchain network, nodes and their various responsibilities can differentiate in solutions. Their precise nature will vary according to the auditing team, analysis tools, and methodologies. Typically, both human and automated tests are performed.
  4. Create a preliminary draft of the report that includes any mistakes identified and send it to the project team for input and follow-up corrections.
  5. Upload the final report, taking into account any modification and correction made by the team to resolve issues noted.

Audits Carried Out on Smart Contract:

Vulnerability of Contracts

A large portion of an audit’s work entails examining contracts for security flaws. While some issues are apparent, others use complex procedures and tactics to siphon funds. Market manipulation, for example, can be paired with flaws in smart contracts to launch flash loan attacks. Therefore, auditors would begin interpreting the testing process to uncover these flaws, simulating harmful attacks on smart contracts. Common flaws include the following:

  1. Re-entry issue: The reentrancy problem occurs when one smart contract makes an external call to another smart contract before any effects have been addressed. The external contract can then recursively call the original smart contract and interact with it in ways it shouldn’t because the original contract’s balance hasn’t been adjusted.
  2. Integer overflow and underflow: The smart contract executes arithmetic operations, but the output exceeds the storage limit (usually 18 decimal places). This may result in inaccuracies in computing the amount.
  3. Front-End trading possibilities: Poorly designed tickers might provide early notice of market buying or selling. As a result, others can exploit the information to trade for personal advantage.

Efficiency of Gas

Smart contract audits are not only concerned with blockchain security; they are also concerned with efficiency and optimization. Some contracts’ purpose is accomplished through a succession of complex transactions. Because network gas fees on networks like Ethereum are pretty high, efficient contracts can save significant money on transaction expenses. However, when the cost of gas is high, smart contracts may fail to execute, especially when the low-cost limit of gas is used.

Vulnerability of Platform’s Security

The process of audits includes a review of network hosting contracts and the APIs used to communicate with DApps. For example, if a project is vulnerable to DDoS attacks or its website’s user interface is compromised, individuals connect their wallets to fraudulent blockchain applications.

Final Takeaway

Notably, smart contract audits have the potential to be a valuable tool for improving the functionality of smart contracts. What appeared to be impenetrable included several security flaws. The audit period is primarily determined by the project’s size and complexity. Other elements, such as communication between the project team and the audit team, influence the efficiency of smart contract audits. However, the price of a smart contract audit varies substantially depending on the platform employed.

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