Abstract

Smart contract security audit can also conduct a detailed analysis of the project's smart contracts. These measures are very important to protect the funds invested in the contract. Since all transactions on the blockchain are final, once the funds are stolen they cannot be recovered. Typically, the auditor will examine the code of the smart contract, generate a report, and give the report to the project team. A final report is then issued detailing any outstanding bugs and work done to resolve performance or security issues.

Introduction

Smart contract security auditing is very common in the decentralized finance (DeFi) ecosystem. If you invest in a blockchain project, your decision may be influenced in part by a review of smart contract code.

Although most people understand the importance of auditing for network security, few people study the line of code in depth. Let’s take a look at the methods, tools and results commonly used in smart contract security audits to help you make more informed decisions.

What is smart contract auditing?

Smart contract security audit will inspect and comment on the project’s smart contract code. Typically, these contracts are written in the Solidity programming language and provided by GitHub. Security audits are especially valuable if a DeFi project is processing blockchain transactions worth millions of dollars or with a large number of participants. Audits usually follow the following four steps:

1. Provide the smart contract to the audit team for preliminary analysis.

2. The audit team presents their findings to the project team for action.

3. The project team makes modifications based on the problems found.

4. The audit team will take into account new revisions and outstanding errors before issuing a final report.

For many crypto users, smart contract audits are indispensable when investing in new DeFi projects. It has become the standard for important projects. Some audit firms have also become industry leaders, increasing the value of their audit work in the eyes of investors.

Why do we need smart contract auditing?

A large amount of value is traded through or locked in smart contracts, which make them easy targets for hackers. Even small coding errors can lead to huge amounts of money being stolen. For example, the DAO hack on the Ethereum blockchain took away approximately $60 million worth of ether and even resulted in a hard fork of the Ethereum network.

Since blockchain transactions cannot be undone, it is crucial to ensure the security of the project code. The high level of security of blockchain technology makes it difficult to retrieve funds and resolve issues after the fact, so it is best to prevent possible vulnerabilities at all costs.

How does smart contract auditing work?

The process of smart contract auditing is quite standard among audit institutions. While each auditor's approach may vary slightly, the general process is as follows:

1. Determine the scope of the audit. Smart contracts and project specifications are defined by the project (its intended purpose) and the overall architecture. Project specifications help the audit team understand the project goals when writing and using code.

2. Provide a preliminary quote based on the amount of work required.

3. Run the test. Its exact nature will vary depending on the audit group, their analytical tools and methods. Usually, two testing methods, manual and automatic, are used.

4. Create a first draft of the report containing the errors found and provide it to the project team for feedback and subsequent corrections.

5. Consider the actions taken by the team to resolve the issues raised and then issue a final report.

Smart contract audit

Fuel efficiency 

Smart contract audit is not just Focusing on blockchain security, we also focus on efficiency and optimization. Some contracts complete their intended functions through a complex series of transactions. Since gas fees are relatively high on networks like Ethereum, efficient contracts can save a lot of transaction costs.

Optimizing its performance is also an indicator of developer skill. Inefficient steps will create more points of failure and should be avoided as much as possible. Smart contracts may fail to execute when fuel costs are high, especially when using low-cost fuel constraints.

Contract Vulnerabilities

Much of the work in an audit involves checking the contract for security vulnerabilities. While some issues are easy to see, many exploits employ advanced techniques and strategies to drain funds. For example, market manipulation can be combined with weak smart contracts to conduct flash loan attacks. To uncover these issues, auditors will begin a deciphering testing process that simulates malicious attacks on smart contracts. Common vulnerabilities include:

1. Reentrancy issues: When one smart contract makes an external call to another external contract before any impact has been resolved. Then, because the balance of that original contract has not been updated, the external contract can recursively call that original smart contract and interact with it in ways it shouldn't.

2. Integer overflow and underflow: When the smart contract performs arithmetic operations, but the output exceeds the storage capacity (usually 18 decimal places). This may lead to errors in calculating amounts.

Preemptive trading opportunities: Poorly structured code can provide early warning of buying or selling in the market. This in turn allows others to use this information to conduct transactions for their own benefit.

Platform Security Vulnerabilities

Most audits include looking at the network hosting the contract and even the APIs used to interact with the DApp. If a project is potentially vulnerable to a DDoS attack, or has its website UI compromised, this means users will actually be connecting their wallets to malicious blockchain applications.

What is an audit report?

The audit report is the report issued at the end of the audit. To increase transparency, the project team should share its findings with the community. Most reports categorize issues by severity, such as critical, major, minor, etc. The report also lists the status of the issues, as the project will still have time to resolve them before the final report is released.

In addition to an executive summary, the standard report will include recommendations, redundant code examples, and complete details of where coding errors occurred. The project has time to act on the report's findings before the final version is released.

Where is smart contract auditing provided?

Many smart contract audit service agencies have become famous for their outstanding services. Two are particularly popular and obtaining an audit from them will require provision of preliminary quotations and handover information.

CertiK

CertiK is the industry leader in smart contract auditing. Hundreds of projects have had their smart contracts audited through them. PancakeSwap, BSC’s largest automated market maker (AMM), is one example. Below is a screenshot of the audit Certik did for PancakeSwap.

In addition, the vast majority of projects supported by Binance Labs have their contracts audited through CertiK. CertiK publishes a ranking of audit projects, complete with security scores, so you can compare each project. Please note that in addition to Ethereum, CertiK also undertakes BSC and Polygon projects.

ConsenSys Diligence

ConsenSys is run by Ethereum co-founder Joseph Lubin and is a leading player in the cryptocurrency industry. One of the leading names in blockchain development. At ConsenSys Diligence, the company offers Ethereum smart contract audits. They also provide automated services to check for common errors in Ethereum Virtual Machine (EVM) contracts.

How much does it cost to audit a smart contract?

The exact audit fee depends on the number of smart contracts that need to be checked. Typically, audit fees run into the thousands of dollars. On certain large projects, the cost can easily exceed $10,000. The audit firm doing the audit and its reputation will also affect how much you'll pay.

Summary

Fortunately for investors and users, smart contract auditing has become a gold standard. However, if every project had a smart contract audit, it would no longer be a simple indicator of value. That’s why it’s important to learn to read audits yourself. Even if you lack technical knowledge, it can be helpful to review reviews and the severity of the potential problem.

When you encounter an audit, it should at least be easier to understand its content. As always, it's important to look at the big picture and consider all information when making any investment decision.