Smart contract security audits support you in identifying potential security gaps in your system. They allow you to fix these vulnerabilities before a malicious party exploits them and ruins your platform.
However, with such new technology, you may be wondering what a smart contract audit is, why a smart contract audit is important, and if you even need a smart contract audit.
What is a smart contract audit?
A smart contract audit is a thorough, systematic examination and analysis of the code used by a smart contract to interact with a cryptocurrency or blockchain. This process is used to find bugs, technical issues, and security vulnerabilities in code. It allows smart contract audit experts to recommend solutions and make changes. Smart contract audits are usually required as most contracts are valuable items and financial assets.
A smart contract audit does not provide a 100% guarantee that the contract is free from errors or vulnerabilities. However, it ensures that the smart contract is secure as it has been assessed by a technology expert.
Cyber attacks on Blockchains & Smart Contracts
It is up to the blockchain developers to find and fix vulnerabilities before using the exploits in real attacks.
Malicious entities use two main methods to launch a successful attack: baiting and reentrancy attack. The first relies on social engineering tricks like persuading a victim to send cryptocurrency to the attacker’s wallet; The second and trickier strategy requires a thorough understanding of blockchain smart contracts and related elements such as side-chain and cross-chain wallets, as well as knowledge of multiple protocols.
Here are three notable blockchain attacks.
wormhole
The Wormhole Bridge hack is the second largest cryptocurrency attack to date. Wormhole, a popular bridge connecting the Ethereum and Solana blockchains, lost around $320 million to a hack. The attacker used a breach in the bridge to steal 120,000 Wrapped Ether worth $323 million.
The attacker was able to mint around 20,000 wETH, an Ethereum equivalent on the Solana blockchain, which was worth $325 million at the time of the incident. They did this by forging a valid signature on a transaction without posting any collateral.
cream financial
Hackers have drained around $130 million in Ethereum tokens by exploiting a flaw in Cream Finance’s flash loan deal. The Cream Oracle technology and its method of calculating asset prices have significant limitations.
The attacker took advantage of smart contract pricing limitations used by CREAM Finance’s platform and changed the price of the yUSD pool used as collateral, making a 1 yUSD share become $2.
As a result, the attacker’s original deposit of $1.5 billion in yUSD doubled, according to Cream Finance. The hacker then converted his yUSD deposit into $3B in Cream Finance and used the $1B profit to drain all of the project’s liquidity.
Inverse Funding
First, the attacker withdrew 901 ETH from Tornado Cash – an Ethereum mixer. The attacker then used SushiSwap’s INV/WETH and INV/DOLA liquidity pools to swap them for INV. After that, they increased the price of INV by utilizing both pools recorded by the Keep3r price oracle that was monitoring the INV price. This allowed the attacker to increase the price of INV on Inverse Finance and siphon off a $15.6 million INV-backed loan to ETH, WBTC, YFI, and DOLA.
The Importance of a Smart Contract Security Audit
A vulnerable smart contract reflects more than just a bad programming attempt. It can damage a developer’s image and ruin projects that took months or years to start. As a result, smart contract auditing is now one of the development steps that programmers take for each new project. The procedure offers the following amazing benefits:
- Improved protection against hackers
- Prevents costly smart contract code errors
- Safer decentralized finance products
- Increased confidence in the project and the entire industry
- Increased credibility in an industry that is becoming increasingly competitive
Developers’ ability to do better and more sustainable work, resulting in safer products and applications, is enabled by this smart contract audit. In addition, the test report serves as an external expert for a new project, which investors and users can rely on.
The Smart Contract Security Audit Process
A smart contract audit follows a largely standardized process at audit providers. Although each reviewer may have a slightly different approach, the standard procedure is as follows:
1. Define the scope of the audit
The project (and its purpose) and the overall architecture define the smart contract and project specifications. A specification allows the audit team to understand the goals of the project when writing and executing the code.
The smart contract specification and other related documentation provide detailed descriptions of the project architecture, build process, and design decisions. Usually the README file for the project contains a description of the specification.
2. Unit Tests
Here the responsibility of the developer is to write unit test cases. During the execution of unit tests, the auditor checks whether the smart contract works as intended. At this point, smart contract reviewers employ testnet and auditing tools to ensure unit testing covers all relevant risks.
In addition, tests give smart contract reviewers access to unofficial documentation that provides additional details about planned project features.
3. Manual check
The most important part of the exam process. The validator checks each line of code for errors.
4. Automated Audit
After the manual review, the reviewer performs a detailed review of the code using review tools such as Slither, Scribble, Mythril, and MythX. Auditors recommend a smart contract audit based on identified vulnerabilities and code optimization.
5. Initial Report
The reviewer creates a first draft of the report, including the errors found, and then sends it to the project development team for feedback and relevant corrections.
6. Final Report
The final phase of the smart contract audit process is the final writing of an audit report. The auditors should complete the testing and manual and automatic analysis processes before preparing a detailed audit report. They publish the final report after considering all the steps the team took to resolve the reported issues.
Penetration testing for smart contracts
By conducting penetration testing, you can prevent cybersecurity-related disasters that could damage your company’s reputation and result in major financial losses. The effective exploitation of smart contract vulnerabilities enables both the detection of serious security vulnerabilities and the identification of potential entry points into information systems.
You can conduct a smart contract penetration test in three ways.
Black box test
In black box testing, a penetration tester tests a smart contract in a “black box” without knowing how it works internally. A tester inputs data and monitors the output generated by the smart contract under test. In this way, the response time, usability and reliability of the smart contract can be identified and how the contract reacts to unexpected and expected user activities.
Gray box test
Gray box testing is a smart contract testing method used to test a smart contract while only knowing part of its internal structure. Gray box testing seeks out and pinpoints vulnerabilities caused by poor, intelligent contract code structure or usage.
White box test
White box testing analyzes the internal structures of a smart contract by testing the functionality of a smart contract. It is also known as clear box test, transparent box test, glass box test and structure test.
The purpose of this test is to thoroughly analyze the entire system. It determines the range and damage capacity of an attacking party.
Smart contract security audits are crucial for DeFi and NFT projects
In summary, several high-profile projects that have lost funds have served as examples, drawing everyone’s attention to the urgent need for good smart contract validation. But even if you conduct a smart contract audit, there is no guarantee that the smart contract will always be immune to attack.
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