What is a smart contract security audit?

Introduction

Security auditing of smart contracts is a common practice within the decentralized finance (DeFi) ecosystem. When making investment decisions in blockchain projects, many investors rely on the results of smart contract code audits.

Despite the understanding of the importance of auditing by many users, most of them are not prepared to delve deeply into the code structure. Let's explore the methods, tools, and outcomes of smart contract security audits that are crucial for making informed investment decisions.

Smart Contract Audit: Concept and Stages

Security auditing of smart contracts is a process aimed at examining the code of a smart contract within a project. Smart contracts are typically developed in the Solidity programming language and hosted on platforms like GitHub. Conducting security audits is particularly critical for DeFi projects where transactions worth millions of dollars occur, or there is a large user base. The audit process generally involves four main stages:

1. Smart Contract Analysis: A group of security experts conducts an initial analysis of the smart contract code.

2. Results Presentation: After completing the analysis, the results are shared with the project team, which takes action based on the identified issues.

3. Implementing Changes: The project team makes changes to the smart contract code based on the identified issues and recommendations from auditors.

4. Issuing the Final Report: The audit group prepares the final report, taking into account all implemented changes and remaining issues.

For many investors, smart contract audits are a crucial criterion when considering investment opportunities in new DeFi projects. For large-scale projects, conducting audits has become a standard practice. Reports prepared by prominent auditing companies are considered more trustworthy and valuable in the eyes of investors.

The Significance of Smart Contract Audits

Smart contracts hold a crucial role within the blockchain ecosystem, serving as instruments for managing and securing substantial assets. Consequently, they become potential targets for malicious actors. Even the slightest deviations or flaws in the code can have dire consequences, resulting in the loss of substantial sums. For instance, the infamous DAO hack on the Ethereum blockchain led to the theft of a staggering 60 million dollars' worth of ETH cryptocurrency, prompting the implementation of a network-wide hard fork to recover the lost funds.

The distinct characteristics of blockchain technology, including the irreversible nature of transactions, render the retrieval of funds and issue resolution post-transaction exceptionally intricate tasks. Therefore, it is imperative to proactively ensure the security of a project's code. Smart contract audits are instrumental in identifying and rectifying potential vulnerabilities and errors within the code, providing an indispensable layer of security and trust for both project participants and investors.

The Operational Principles of Smart Contract Auditing

Smart contract auditing is a widely practiced procedure, and although the approaches of auditing companies may vary, the general auditing process typically involves the following stages:

1. Defining the Scope of the Audit: At this stage, the extent of the smart contract code to be audited is determined. The contract specifications are established based on the project's purpose and overall architecture. These specifications help the auditing team understand the project's goals and the key tasks related to coding and usage.

2. Assigning an Initial Price: At this point, the cost of conducting the audit is determined, which depends on the scope of work and the complexity of the smart contract.

3. Verification: This stage involves checking the smart contract code for potential vulnerabilities and errors. For this purpose, both automated tools and manual code review by auditors may be employed.

4. Drafting a Report: After the verification is complete, a draft report is created, documenting the identified errors and vulnerabilities. This draft report is provided to the project team for rectification.

5. Publishing the Final Report: Upon completion of the issue resolution process by the project team, the auditing team prepares the final report. This report documents all actions taken by the project team to address the identified issues and provides recommendations for ensuring the security of the smart contract.

This process ensures a higher level of smart contract security and instills confidence in the project participants and investors regarding its reliability.

Methods of Smart Contract Auditing

Smart contract auditing encompasses not only security checks but also the assessment of efficiency and optimization within the blockchain system. Let's explore some key aspects of smart contract auditing:

Gas Efficiency:

Some smart contracts execute complex sequences of transactions to fulfill their functions. In networks like Ethereum, the cost of gas (transaction fees) can be high. Efficient smart contracts can significantly reduce transaction fee costs. Optimizing the performance of a smart contract is a sign of a developer's competence. Inefficient operations in smart contract code can lead to errors and high gas costs, especially with limited gas limits.

Uncovering Uncommon Smart Contract Vulnerabilities:

A substantial aspect of the audit process centers around the identification of distinctive security weaknesses within smart contracts. While certain vulnerabilities may be relatively straightforward to pinpoint, many errors necessitate the application of advanced tools and methodologies for their unique revelation. Here are examples of these less common vulnerabilities:

1. Recursive Calls: When a smart contract initiates a call to another contract before changes have been officially recorded, it can lead to unprecedented and atypical consequences.

2. Integer Overflow: Smart contracts that engage in arithmetic operations susceptible to producing outcomes distinctive to integer overflow, potentially resulting in exceptional situations.

3. Front-Running: Poorly structured code may inadvertently expose exclusive insights into forthcoming transactions, which malicious actors could exploit for their unique gains, leading to unconventional risks.

4. Platform Security Flaws: A substantial portion of the auditing process involves scrutinizing the network housing deployed smart contracts and the API interfaces employed for interactions with decentralized applications (DApps). This thorough examination helps uncover vulnerabilities that go beyond the ordinary, including the potential for Distributed Denial of Service (DDoS) attacks and compromised interfaces that pose unique threats to users if they unwittingly connect their wallets to malevolent blockchain applications.

Smart contract auditing represents a pivotal measure in ensuring the security and efficiency of blockchain initiatives, all while maintaining originality in the conveyed content.

What is an Audit Report?

An audit report is a document provided after the completion of the auditing process. It is expected that the project team will make the obtained results publicly available. In most cases, such reports classify issues by severity levels, such as critical, significant, minor, and others. The report also indicates the current status of each issue, and the project team is given time to address them before the final report is published.

In addition to the main findings, an audit report often includes recommendations, examples of redundant code, and a comprehensive analysis of code errors. The project team has the opportunity to rectify identified issues before the final report is published.

How to Obtain a Smart Contract Audit

To conduct a smart contract audit, you have the option to approach well-known auditing companies such as CertiK and ConsenSys Diligence. Here is some additional information about each of them:

CertiK:

CertiK is a leader in the field of smart contract auditing and has significant experience in this area. The company has audited hundreds of smart contracts, including well-known projects like PancakeSwap, the largest automated market maker (AMM) on the Binance Smart Chain (BSC). Many projects supported by Binance Labs have also undergone CertiK audits. CertiK maintains a rating of verified projects and assigns security assessments to each. In addition to Ethereum, CertiK also conducts smart contract audits for the BSC and Polygon networks.

ConsenSys Diligence:

ConsenSys Diligence is a part of the larger company ConsenSys, which specializes in blockchain software development. It offers smart contract auditing services for Ethereum. ConsenSys Diligence also provides an automated service that checks contracts operating on the Ethereum Virtual Machine (EVM) for common errors.

To initiate the smart contract audit process, you need to reach out to your chosen auditing company, provide information about your project, and then enter into an agreement for the audit to be conducted.

Conclusion

Auditing smart contracts has become an integral part of the blockchain and decentralized finance (DeFi) ecosystem, ensuring that smart contracts are secure and reliable. It serves as the standard for protecting the interests of investors and users in blockchain projects.

However, as the number of audits increases, assessing the value of projects becomes more complex. Therefore, it's crucial not only to rely on the fact that an audit has been conducted but also to independently review the audit reports provided by auditing companies. Even without technical knowledge, you can comprehend the comments and the seriousness of the identified issues.

Keep in mind that making investment decisions requires thorough analysis and a deep dive into project research. Always stay well-informed and cautious in the realm of blockchain technologies.