What is a Smart Contract Audit?

In this lesson you will learn about what is a smart contract audit, the importance of a smart contract audit and the process in which these audits are conducted on smart contracts.
September 16, 2022

What is a SMART Contract Audit?

A smart contract audit is a security measure every project should go through. As an audit it is an examination of code and the possible automations they do.  

Smart contracts are simple snippets of code that are generally deployed on decentralized blockchains. They are executed by virtual machines that ensure they run smoothly. They are tamper proof, transparent, and highly efficient, smart contracts are quickly becoming recognized for their disruptive potential in dozens of different industries. Today, smart contracts are already being used for a huge variety of use cases, including decentralized trading, voting, insurance, and medical record storage/access. Due to the importance a smart contract plays on various blockchain projects it is important to ensure that they are secure and free of bugs that may compromise user security. 

In this lesson you will learn about what is a smart contract audit, the importance of a smart contract audit and the process in which these audits are conducted on smart contracts.

What is a Smart Contract?

Before diving into the mechanisms of a smart contract audit let’s do a quick review of what Smart contracts are.

Smart contracts are computerized transaction protocols tailored for the execution of the terms of a contract, or simply put, Smart contracts are programmed to execute actions when certain criteria are met. Primarily, they are designed for addressing common contractual conditions

while at the same time reducing accidental exceptions and the involvement of third parties. Smart contracts are essentially a set of digital codes used to exchange assets such as money, shares, or even property without the need of a third party to function correctly, making them great for decentralization and less prone to a bad-actors bias. 

There are many benefits associated with smart contracts including: autonomy, security,

interruption-free, trustless, cost-effectiveness, and fast performance.

As it stands smart contracts are used in government voting, record storage, supply chain

management, the real estate market, insurance claims, and in the mortgage system.

What is a Smart Contract Audit?

Smart contracts are used by blockchain applications, interacting with blockchains and/or various cryptocurrencies. Being that they interact with many moving complex parts, smart contracts are vulnerable to bugs. A thorough examination for quality assurance needs to be done, and that's where a smart contract audit comes in.

A smart contract audit is an extensive methodical analysis of a smart contract’s code. The process is aimed at discovering errors, issues and security vulnerabilities in the code so as to suggest improvements and ways of fixing them. 

 A smart contract audit nips threats in the bud.

Why are Smart Contract Audits Necessary?

The checks involved in the audit are complex. Smart contracts often interact with each other and any integrations with intermediary systems may result in making the system vulnerable. As smart contracts often manage huge quantities of funds, a single error in the code or a vulnerability can result in massive losses. To put this into context, the users and stakeholders of the decentralized application in question could potentially lose all the assets that were part of the ecosystem.

An audit is conducted over several steps. Initially, the team and the auditing group must  agree on the scope and details of the audit, which means that the design, purpose, architecture and other details of the contract must be handed over to the auditors. After this step is completed, the testing phase can begin.

The testing phase includes the auditors testing the individual functions (unit tests) and then larger parts (integration tests). Automated bug detection and analysis tools are used to seek out commonly known vulnerabilities in contracts. Finally, auditors manually inspect each line of coding to understand the developer’s intentions, and then interpret the findings within its context. Once all these steps are concluded, a report is issued with the findings and the fixes applied by the testing team.

The Value and Importance of Smart Contract Audits

Security is the main concern when it comes to smart contracts, and therefore necessitate a thorough delve into the system. Concerns over inefficiency, security and misbehavior are of great importance as it could result in extremely high additional costs in implementing smart

contracts on a blockchain. Enterprises need to ensure that a smart contract is without bugs and vulnerabilities, considering the irreversible nature of the contracts. Furthermore, there is a risk of losing the entire contract and associated assets due to security vulnerabilities. Taking all this into consideration, a smart contract audit becomes an important requirement for many different reasons, including:

  • Improved performance of smart contracts,
  • Better optimization of the code,
  • Enhancing the security of wallets,
  • Securing the ecosystem against attacks.

It is clear that smart contracts are very advantageous in the technologically focused world we live today. Therefore, it’s necessary to ensure that they operate optimally to prevent any possible negative fallout via smart contract auditing.

Lesson Recap (TL:DR)

A smart contract audit is an extensive methodical analysis of a smart contract’s code. The process is aimed at discovering errors, issues and security vulnerabilities in the code so as to suggest improvements and ways of fixing them. 

An audit can be broken down to 4 main steps:

  1. Scope and limitation - Accredited auditors such as Hacken must know what a smart contract is meant to do, and they must know the parameters of what they are examining. 
  2. Testing - Auditors will conduct unit tests to look into possible vulnerabilities of individual functions; and will also conduct integration tests to check the interactions between many different components. 
  3. Manual code inspection - Each line of code in a smart contract is then reviewed to unearth code vulnerabilities.
  4. Reporting - A final report is given, any vulnerabilities will be highlighted and given fix suggestions. 

Due to the many important uses of smart contracts it is important to be diligent in ensuring it is secure. There have been many mishaps through the years where valuable assets have been lost due to unwanted project vulnerabilities. A smart contract audit is one way to improve the performance of smart contracts, optimize code, enhance wallet security, and safeguard ecosystems from attacks.  

Resources
  1. Ethereum 101 - https://secureum.substack.com/p/ethereum-101 
  2. Audit Techniques & Tools 101 - https://secureum.substack.com/p/audit-techniques-and-tools-101 
  3. Audit Findings 101 - https://secureum.substack.com/p/audit-findings-101 
  4. Smart Contract Security Audit - https://hacken.io/services/blockchain-security/smart-contact-security-audit/ 

About Hacken

Hacken is a cybersecurity auditor born in 2017 with a vision of transforming Web3 into a more ethical place. With 5+ years of experience, hundreds of blockchain partners, and thousands of secured crypto projects, Hacken protects technological businesses and crypto communities worldwide with the most competitive suite of professional cybersecurity services. 

Hacken in figures:

  • 1,070+ clients, including THORSTARTER, ConstitutionDAO, XTblock, Paribus, to name a few
  • 180+ partners including Avalanche, Polkastarter, CoinMarketCap, Weld Money, CoinGecko, Solana Foundation, Simplex, to name a few
  • 23/50 top crypto exchanges are Hacken clients
  • $10B in users’ assets saved from being stolen by hackers

Strategic goal: get a 20% share in the Web 3.0 cybersecurity market by 2024.

For more on Hacken follow them on:

Twitter | Discord | Telegram | Hacken.io

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