Why do you need security audits for smart contracts?

Protection

Security audits for smart contracts can help you find potential weak points in your system. It enables you to fix these flaws before a malicious party takes advantage of them and undoes what you've created.

With this new technology, though, you might have questions about what a smart contract audit is, why a smart contract security audit is significant, and whether you actually need a smart contract audit.

What is auditing of smart contracts?

A thorough and methodical inspection and analysis of the code that a smart contract uses to communicate with a cryptocurrency or blockchain is known as a "Smart Contract Audit." This method is employed to identify bugs, errors, and security flaws in code. With it, smart contract security audit professionals can provide suggestions for improvements. Because most smart contracts deal with valuable items and financial assets, smart contract audits are typically necessary.

The existence of defects or vulnerabilities in the contract cannot be completely assured by smart contract audits. However, after being examined by a technical specialist, it does guarantee that the smart contract is secure.

Blockchain networks and smart contracts are targets of cyberattacks

Blockchain developers have a responsibility to identify and address vulnerabilities before they are employed in actual attacks.

Bait and response attacks are the two basic strategies used by malicious groups to conduct successful attacks. The second, more complex strategy calls for a thorough understanding of Blockchain network smart contracts and related elements, such as cross-chain and sidechain wallets, as well as knowledge of various protocols. The first strategy is based on social engineering tricks, such as convincing the victim to send cryptocurrency to the attacker's wallet.

Smart contracts are appealing targets for malevolent hacker attacks because they handle or trade substantial quantities of wealth. Large amounts of data can be stolen due to straightforward programming flaws.

Three prominent Blockchain attacks are listed below.

the wormhole bridge

The Wormhole Bridge hack is currently the second-largest cryptocurrency-related attack. Due to the breach, Wormhole, a well-known bridge connecting the Ethereum and Solana chains, lost about $320 million. The attacker stole 120 323 Ether, or XNUMX million dollars, by taking advantage of a weakness in the bridge.

On the Solana Blockchain, the attacker was able to create almost 20,000 hours' worth of Ethereum, which was worth $325 million at the time of the attack. He accomplished it by impersonating a legitimate signer on a transaction without providing any guarantees.

Financing CREAM

By taking advantage of a flaw in Cream Finance's rapid loan contract, the hacker obtained Ethereum tokens valued at almost $130 million. The technology and approach used by Oracle Cream to determine asset prices have severe drawbacks.

The attacker modified the price of the pool of yUSD used as collateral, turning the 1 yUSD bet into $2 by taking advantage of the limitations on price computations provided by the smart contracts utilised by the CREAM Finance platform.

As a result, Cream Finance reports that the attacker's initial $1.5 million investment in yUSD has increased by twofold. The hacker then used his yUSD investment at Cream Finance to convert it into $3 billion and used a $XNUMX billion profit to drain the project's overall liquidity.

reverse lending

The attacker started by taking 901 ETH out of Tornado Cash, the Ether Mixer. The attacker afterwards converted them to INV using the liquidity pools for INV/WETH and INV/DOLA on SushiSwap. The INV price was then artificially increased using data from both groups that Oracal Keep3r used to keep track of the INV pricing. Inverse Finance's INV price was inflated as a result, enabling the attacker to withdraw a debt secured by $15.6 million in INV in ETH, WBTC, YFI, and DOLA.

Smart Contract Security Audit's Importance

A weak smart contract is the result of more than just poor programming. It may damage the developer's reputation and jeopardise initiatives that took months or years to create. As a result, programmers now include smart contract audits in their development process for all new projects.

The smart contract code for a project is examined and commented upon in a smart contract security audit. These contracts are often created using GitHub and written in the programming language Solidity. Decentralized finance projects that anticipate processing millions of dollars' worth of Blockchain transactions or a sizable number of investors will benefit significantly from security assessments.

The procedure delivers the following incredible advantages:

enhanced security against hackers.

Avoid expensive smart contract errors.

Decentralized financial goods that are safer.

Boost public trust in the initiative and the sector as a whole.

increased credibility in a sector that is becoming more and more competitive.

Through smart contract audits, it is feasible for developers to do better, more enduring work that results in more secure products and applications. Additionally, the audit report acts as an independent expert's endorsement of a new initiative, which investors and customers may rely on.

Process for securing smart contracts

The process for auditing smart contracts is comparatively uniform among auditing service providers. Despite the fact that each reference may adopt a somewhat different strategy, the accepted practise is as follows:

1. Establish the review's parameters.

The project (and intended application), the overall design of the smart contract, and the different specifications are all defined. When building and running the code, the audit team is able to comprehend the project's objectives thanks to the specification.

A thorough explanation of the project architecture, development procedure, and design choices may be found in the smart contract specification and other associated publications. The specs are often described in the project's README file.

Audits of smart contracts are not just concerned with the blockchain's security. Additionally, you consider efficacy and advancement. Some contracts carry out a complicated set of operations to fulfil their specified purpose. Effective contracts can significantly reduce transaction costs because processing expenses on networks like Ethereum are rather high.

Unit test 2.

Here, the developer is in charge of creating unit test cases. The validator tests the smart contract's functionality while the unit tests are executing. At this step, smart contract auditors make sure unit tests cover all pertinent risks by using testing tools and an audit network.

The tests also provide smart contract auditors access to unofficial documents that offer further information about the project's intended functionality.

3. Manual review

the critical step in the review process. Each line of code is examined by the verifier for mistakes.

4. Self-verify

After human proofreading, the validator uses proofing tools like Slither, Scribble, Mythril, and MythX to do a thorough code review. Based on the found vulnerabilities and code optimization, the auditor advises doing a smart contract audit.

The majority of an audit's job consists of examining contracts for security flaws. While some problems are obvious, many exploits use sophisticated methods and schemes to steal money. For instance, attacks on rapid loans can be launched using market manipulation and weak smart contracts. The validator starts checking for outages and simulating malicious attacks on smart contracts in order to discover these problems.

5. Creation of preliminary reports

The project development team receives the auditor's initial draught of the report, which includes any problems discovered, and provides feedback and necessary revisions.

6. The Last Report

The writing of the audit report is the last step in the smart contract audit procedure. Before releasing a thorough audit report, the auditor must finish testing and analysis using both manual and automated methods. The team's efforts to address the concerns mentioned are taken into consideration before publishing the final report.

At the conclusion of the audit procedure, the audit report is delivered. Projects are supposed to share their findings with the community in order to attain transparency. Most reports divide problems into severity categories like critical, major, minor, etc. In order to give projects time to address the problem before the final report is released, the report will include indicate the issue's status.

The standard report will also include recommendations, redundant code samples, and a thorough description of all the defects, in addition to the executive summary. Before the final version of the report is issued, the project is given time to act on its conclusions.

testing for vulnerabilities in smart contracts

You may avoid cybersecurity catastrophes that could harm your company's reputation and result in considerable financial loss by conducting penetration tests. Effectively exploiting security flaws in smart contracts will make it possible to find crucial flaws and pinpoint potential access points into information systems.

There are three approaches to carry out a smart contract penetration test.

using a black box

A penetration tester uses "black box" testing to test a smart contract without being aware of how it operates internally. Data is entered by the tester, who then examines the output produced by the smart contract under test. This makes it possible to evaluate the smart contract's response speed, usability, dependability, and how it reacts to both unexpected and expected user behaviour.

the grey box test

Gray box testing is a technique for testing smart contracts when just a portion of their internal structure is known. Gray box testing looks for flaws in the design or implementation of shoddy smart contract programming.

black box test

White box testing examines a smart contract's core components as opposed to verifying its functionality. It is also referred to as a structural test, glass box test, and transparent box test.

This test's objective is a comprehensive system analysis. determines the damage done by the attacking side.

Security audits of smart contracts are essential for DeFi and NFTs.

Several well-known initiatives that suffered financial setbacks were used as examples, bringing attention to the critical necessity for competent smart contract auditing. However, there is no assurance that the smart contract will always be impervious to assault, even if you carry out a smart contract audit.