Smart Contract Audits Explained

Hey there! If you’re venturing into the captivating world of cryptocurrency, you might come across various complexities and challenges that make the experience scary.

The following post is here to ease your journey, and shed light on how decentralized applications are deployed, what are the unique security risks of blockchain technology, and how the industry is proactively tackling them.

What are Smart Contracts?

Smart contracts are a pivotal component of blockchain technology. They self-execute contracts, with the agreement's terms directly written into the code. They are secure, transparent, and remove the need for intermediaries. However, as with anything human-made - they are susceptible to vulnerabilities.

You can think of smart contracts as programs operating on a cloud. Since crypto is very focused on financial services, you imagine they are a decentralized version of your bank’s customer page or you Venmo app, where you perform basic banking operations. Except smart contracts are deployed on blockchains, and therefore they are decentralized, transparent and immutable.

The emergence of blockchains has notably transformed the financial industry by allowing the transfer of economic value. Because smart contracts often involve large financial transactions, ensuring their security is critical for a reliable and safe blockchain user experience.

Why are Smart Contracts Vulnerable?

Most smart contracts can't be altered once deployed to the blockchain. If they contain bugs or errors that have been unintentionally overlooked during the development process, this can pose a risk of an exploit.

Smart contracts are extremely complex, written in relatively new coding languages like Ethereum’s Solidity, or Solana's Rust, and often packed with dependencies on other contracts or external systems, which makes them vulnerable to hidden security issues.

To top it all off, the inherent transparency of blockchain technology gives everyone access to the code. this includes hackers, who can take all the time they need to figure out ways to exploit them.

Blockchain technology has enabled a new world of financial digital relationships built on top of open source code. Smart contracts often deal with sensitive data and transaction information that needs to be thoroughly, frequently battle tested.

Our team at Audita wants to make the experience of using crypto as safe as possible.

Examples of Smart Contract Vulnerabilities

Oh, where do we begin… hackers and auditors alike have become more and more creative in recent years, playing the game of cat and mouse, waiting for an opportunity to catch the opponent unprepared.

Some examples of smart contract attacks are flash loan attacks, sandwich attacks, Denial-of-Service attacks, front-running, reentrancy, replay attacks and many more.

What we've noticed in our work as white hats, is that most vulnerabilities are hidden in external dependencies, such as oracles or third-parties. Sometimes the issue is in a fallback mechanism not designed with enough attention. Other times it's about user validation - who are the people who are in charge of the system and what are the mechanisms in place to ensure their legitimacy?

We like to say: 'Always assume user input is malicious.'

Verify and validate all the information users supply to your system. Think of all the edge cases, and how each mechanism relates to all others. It's no easy task, but definitely will save you some headaches!

For more info on vulnerabilities, take a look at some examples of vulnerabilities we found, or check our public reports.

How does an Audit Prevent Web3 Exploits?

A smart contract audit is a thorough search for hidden attack vectors. It aims to spot and fix any issues that could make the contract vulnerable to hacks, inefficient operations, or misuse by malicious actors.

Both automated and manual processes are used during the audit. Automated testing checks every possible state of a smart contract and raises alerts around issues that could undermine the contract's security. A team of security experts then manually reviews each line of code, identifying errors and vulnerabilities that automated tests might miss.

Audits are not just about the technical expertise and meticulous attention to detail, but they also require a deep understanding of the business architecture of a project and the desired user experience. We recognize that every test and check we conduct should be backed by sound reasoning and should lead to actionable solutions. Our aim is not just to identify the vulnerabilities, but to provide meaningful insights and recommendations that enhance the overall functionality, security, and user experience of your project.

Audits tend to bring significant reputation benefits. Sharing audit information with the community demonstrates the project's commitment to safety of funds, transparency and trustworthiness. This can boost user confidence and contribute to the project’s credibility in the competitive crypto space.

What does a Smart Contract Audit Contain?

A proper audit starts with collection of relevant documentation - the codebase, white paper, architecture, and any other related material. The auditor team checks for any discrepancies between described functionality and actual functionality. Once all the vulnerabilities and issues have been identified, they are classified according to the severity of the exploit they could enable.

The auditors then draft an initial report that summarizes the issues found in the code, along with feedback on how the project's team can fix them. After resolving all the issues, the final audit report is published, detailing all findings and how they were resolved.

Smart contract audits are an essential part of the development process for decentralized applications. They help ensure the security, reliability, and performance of these applications, protecting both the integrity of the application and the funds of its users.

Why work with Audita for your Smart Contract Audit?

If you’ve made it this far, maybe it’s because you’re considering launching a Web3 project. Entrepreneurs have an increasing supply of solutions to take their ideas from vision to product, so why not give it a try.

Remember auditing your project thoroughly. And consider doing it with Audita:

• We’re a rising company with a track record of auditing projects and great ambition.

• Our team has a deep understanding of blockchain technology. Challenge us!

• We excel at transparent communication and close collaboration with our clients, ensuring a tailor made experience.

• We'll give you advice on your naming, architecture, fallbacks, gas optimisations, code quality and overall mechanisms.

• We’re committed to fast and efficient delivery, understanding the need for prompt services in the fast-paced Web3 world.

Eager to meet us and talk about your project? Book a project dive!

STAY SAFU

Audita's Team