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What Is Smart Contract Auditing In Blockchain Networks And What Is It For?

Smart contracts, like traditional contracts, specify the terms and requirements of an agreement.

Unlike written contracts, the terms of smart contracts are enforced by blockchain networks like Ethereum in the form of code that runs on the network. Therefore, audits of smart contracts are important for meeting security standards.

Smart contracts enable 'peer-to-peer' transactions in many areas, from insurance to credit, logistics to gaming. Therefore, smart contracts also need to be controlled and secured. This requires a smart contract audit. In a smart contract audit, the smart contract codes of the relevant projects are examined. After the review, evaluations are made about the codes. These smart contracts are generally written in the Solidity software language. These smart contracts are made available via GitHub. Smart contract audits generally have four steps. These steps are as follows:

  1. The relevant smart contracts are presented to the audit teams for initial analysis.
  2. Audit teams share all findings with the projects to take action.
  3. Project teams make changes in line with the identified issues.
  4. Audit teams share the final report, which includes all innovations, changes, and notable errors.

For many cryptocurrency investors and users, these smart contract audits are an important indicator when investing in decentralized finance projects. At the same time, some auditing firms are seen as leaders in the field. This means that smart contracts audited by better auditing firms are important for cryptocurrency investors.

Why Smart Contract Audits Are Needed?

The high value of cryptocurrencies locked on or traded through smart contracts makes them an important target for attacks by hackers and cyber hackers. Some coding and software errors can lead to the theft and disappearance of very large amounts of value and money. For instance, the DAO attack on the Ethereum blockchain network resulted in the theft of around 60 million dollars of ETH. This attack also led to a hard fork on the Ethereum blockchain network.

Transactions on blockchain networks are irreversible. It is important to ensure that the code of the projects involved is trustworthy. The inherently secure nature of blockchain technology makes it very difficult to recover funds or resolve problems if something goes wrong. For this reason, it is very useful to identify and fix vulnerabilities in blockchain networks.

For this, audits such as smart contract audits are needed.

How Do Smart Contract Audits Work?

In smart contract audits, the process is carried out within a standard for audit firms. Although there are some differences between the approaches and processes of auditing firms, the general process is as follows:

  1. As a first step, the scope of the smart contract audits to be performed is determined. The technical competencies of the smart contract are determined within the project's intended goal and overall architecture. Technical competencies and features help the company's audit teams to more clearly define what the project aims to achieve when writing and using the code.
  2. In proportion to the amount of work that needs to be done by the auditing firm, initial price quotes are sent to customers.
  3. All necessary tests are then performed on the smart contract. Exactly what is done in this step may vary depending on the firm's audit and testing teams, analysis tools, and techniques. In general, all tests are performed both manually and automatically.
  4. A draft is prepared containing all errors found in the final report. The auditor company transmits this draft as feedback. Then, the corrections and renewals to be realized are presented to the project teams.
  5. A final report containing all the actions of the teams is shared to solve the identified problems.

What Are Smart Contract Audit Methods?

Smart contract auditing methods include the following:

  • Gas efficiency and performance
  • Smart contract vulnerabilities
  • Security shortcomings of the platform

Gas Efficiency and Performance

Smart contract audits are not only concerned with the security of blockchain networks. In addition to security, efficiency, performance, and optimization are also examined. Some contracts may take different and complex paths to fulfill their functions. Given that gas fees are higher on blockchain networks like Ethereum, efficient smart contracts can often save on transaction fees.

Optimizing the efficiency and performance of smart contracts is another indicator of developers' competence. Inefficient moves can increase the risk of errors. Developers should avoid such situations.

If gas costs are high and a particularly low gas limit is preferred, smart contracts may not work correctly.

Vulnerabilities of Smart Contracts

Much of the work in smart contract audits involves identifying and remediating contract vulnerabilities. Some issues are relatively easy to detect compared to others. However, in many malicious attacks, attackers use advanced attack techniques and strategies. For instance, in a relatively weak smart contract, malicious actors who want to launch a flash loan attack can manipulate the market. To detect such problems, auditing firms apply break tests. These break tests on smart contracts use a simulation of certain types of attacks. The most common security flaws in smart contracts are as follows:

  • Excess or deficiency of integer
  • Re-registration issues
  • Opportunities for front-end trade execution

Excess or Scarcity of the Whole Number

This happens when smart contracts perform an arithmetic operation and the output of the operation exceeds the storage capacity. Thus, the calculated values can be incorrect. This capacity is commonly 18 decimal places.

Re-registration Issues

This happens when a smart contract makes a call to another external smart contract before it has updated its state. The external smart contract can then make repeated calls to the original smart contract that made the call. However, since the original smart contract's balances and values have not yet been updated, it may interact incorrectly with the other smart contract.

Opportunities for Front-End Trade Execution

A structurally flawed code can send a warning in advance for buying and selling in the market. This can lead to others using such data and trading for their benefit.

Flaws in Platform Security

Most smart contract audits scrutinize the blockchain network that hosts these contracts and the APIs that communicate with the DApp. Projects can be subject to DDoS attacks. Another possibility is that the interface of the relevant web address is compromised. As a result, users can connect to malicious blockchain applications.

What Is Smart Contract Audit Report?

In many smart contract audits, the final report is presented at the end of the audit process. To ensure the necessary transparency and trust, it is expected to share the findings of the project with the community. In many reports, issues are categorized as critical, important, minor, and so on. Before the final reports are shared, projects may be given a certain amount of time to resolve issues. This is then included in the final reports. Standard reports include a summary. In addition, there are recommendations, examples of unnecessary code, and an indication of where errors with the code are located. A certain amount of time is given to take action on these issues before the final report is published.

Which Applications Can Be Preferred for Smart Contract Auditing?

The most prominent companies in the smart contract auditing industry are:

  • CertiK
  • ConsenSys Diligence
  • Hacken

CertiK

When it comes to smart contract audits, CertiK is the leader in the field. Today, hundreds of smart contract projects have been audited through CertiK. PancakeSwap, BSC's most comprehensive automated market maker (AMM), is one example of a large project that has been audited. Many of the dozens of projects supported by Binance Labs have been audited by CertiK. CertiK also shares a leaderboard with security scores for the smart contract projects it audits. This ranking allows users and developers to compare projects.

In addition, CertiK performs audits of Ethereum blockchain network projects as well as projects of BSC and Polygon blockchain networks.

ConsenSys Diligence

One of the co-founders of Ethereum is Joseph Lubin. Lubin, who also runs ConsenSys, is a well-known figure in the blockchain space. ConsenSys is one of the leading companies in the cryptocurrency space for the development of blockchain networks. ConsenSys performs Ethereum smart contract audits. ConsenSys also offers a service that automatically checks the Ethereum Virtual Machine for the most common problems.

Hacken

Hacken is used to identify vulnerabilities in blockchain networks and projects, detect weaknesses and perform security audits against possible attacks. The firm has a team of bona fide hackers called white hackers. This team audits and optimizes smart contracts, network security, and code audits of cryptocurrency projects.

How Much Does a Smart Contract Audit Cost?

The exact estimated costs can vary depending on the number of smart contracts that need to be controlled and audited. In general, an audit can cost thousands of dollars. For comprehensive projects, prices can easily exceed $10,000. The auditing firm and its reputation can also affect the price.

Smart contract audits are very important for the benefit of investors and users. For this reason, smart contract audits have become a standard of trust in the industry. Apart from developers, users can have an idea by reading the shared reports. Even non-technical people are advised by companies to read these reports at least once.

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