How to Audit Smart Contracts for Security

How to Audit Smart Contracts for Security

In blockchain, security is not just an option; it is a necessity!

Whether you’re a beginner or a regular user of blockchain, everyone’s first concern when using new technology is security. So, since you’re a blockchain user, your top priority should be security.

Thank you to smart contracts for this! They are immutable and self-executing, which improves transparency and trust, but also means that any bugs or vulnerabilities are permanent once deployed. With the help of this, you can easily oversee catastrophic consequences, from lost funds to hacked projects.

However, after reading this, you might still wonder, why is auditing important? So, simplify all your doubts; all you’re required to do is scroll through this smart contract audit guide until the end.

Through this comprehensive guide, you’ll gain in-depth information related to smart contract security, what its steps are, popular tools, and more.

Let’s begin!

What is a Smart Contract Audit?

Curious to know what a smart contract audit is? Let us make it understandable for you.

A smart contract audit is a time-boxed, security-focused code review, where external experts identify and address vulnerabilities, bugs, and shortcomings in the smart contract’s code before deployment on a blockchain.

It is generally a safety inspection that checks every part of the contract before it goes live. This is crucial because once smart contracts are deployed, they can’t be changed. So, here, catching all the major issues earlier helps developers, investors, and end-to-end users to prevent financial losses, protect funds, and build trust.

In short, it’s a crucial step to ensure your code is secure, reliable, and ready for the real world.

Why Smart Contract Audits are Important

Discussing its importance, imagine in a vibrant city you’ve left your front door unlocked; here, it’s only a matter of time before something goes wrong.

That’s exactly what an unaudited smart contract is; leaving these contracts unshielded is a possible jackpot for hackers who are waiting to use any weaknesses in your code. Let’s understand why audit smart contracts:

See More: How To Use Smart Contracts In dApps

Auditing smart contracts is crucial due to risk management. The dangers of ignoring an audit are absolute. Hackers commonly thrive on poorly written or unaudited code, and the blockchain world has already witnessed its share of disasters.

Whether you take the infamous DAO hack of 2016 or the Poly Network breach in 2021, both of these have faced the tragedy of hacks. In 2016, smart contracts permitted an attacker to siphon off $60 million worth of Ether; in 2021, they witnessed an over $600 million backlash, and the reason is a flaw in the contract’s design.

These major incidents reflect the importance of smart contract audits. However, with the help of this auditing, you’ll even gain numerous benefits like

• Trust Building: Whether you’re a developer planning to launch a DeFi platform or an enterprise looking forward to creating a tokenized system, users will automatically contend with your outcome if they know it’s been exhaustively reviewed.
• Assure Compliance: In a complex legal environment, your project will gain importance if you develop smart contracts while adhering to industry standards and legal requirements.
• Enhance Functionality: By detecting bugs and boosting efficiency, audits will guarantee the contract performs exactly as planned.

This shows that a smart contract audit is not just a nice-to-have but a must-have. It’s all about protecting assets, building transparency, and ensuring smooth functioning.

Step-by-Step Smart Contract Audit Process

While listening to auditing, you might be wondering how hectic the process might be. But there’s no need to worry about anything; just follow this step-by-step smart contract audit process. And maximize your development process.

Step 1: Define the Scope and Gather Documentation:

The auditing process typically begins with defining the scope. Auditors first review the purpose of the projects, business logic, and technical documentation. This helps them in understanding what the contract is believed to do and acknowledging the high-risk areas that need special attention.

Step 2: Manual Code Review

Next, experts go through the code line by line and spot the common issues that are dangerous for that particular project. During this process, it typically accesses control flaws, reentrancy risks, gas inefficiencies, and logic errors. However, manual review is also mandatory because it catches issues that automated tools might miss.

Step 3: Automated Analysis

Once done with manual code review, it’s time for automated analysis. Herein, auditors generally execute the contract through specialized tools like Slither, MythX, and Oyente. These tools scan the entire codebase and generate a detailed report highlighting vulnerabilities, insecure coding patterns, and performance issues. Its result is to save time and reduce human error.

Step 4. Testing the Contract

This step includes:

• Unit testing ensures that each function works correctly.
• Integration testing, checking how different parts of the contract interact.
• Fuzz testing sends random inputs to discover whether the contract behaves unexpectedly.
• Stress testing generally simulates a heavy network load to find scalability issues.

Step 5. Detect and Mitigate Vulnerabilities

At this step, auditors focus on critical security risks like reentrancy attacks, front-running, denial-of-service, integer overflow/underflow, and gas limit issues. They commonly provide detailed suggestions for fixes or rewrite the code to eliminate risks.

Step 6. Review External Dependencies

If the contract relies on oracles, APIs, or any third-party libraries, then auditors will also cross-check their security. Any weak line in these connections can ruin the entire project.

Step 7: Formal Verification

This verification is typically for high-stakes projects, like DeFi platforms, DAO treasuries, or NFT marketplaces handling a large amount of funds. Here, auditors choose to execute the formal verification, which includes a mathematical process that proves the contract is performing as planned.

Step 8: Generate Audit Report

Lastly, once the auditor is done with all the following procedures, create and share the report with the development team. In reports, they generally mention all the discovered vulnerabilities. Severity levels, recommended fixes, and an overall risk assessment. Meanwhile, some projects also choose to publish this report in public to gain the user’s confidence.

Common Vulnerabilities to Watch For

There are plenty of vulnerabilities to watch during a smart contract audit; some of the critical ones include:

A. Reentrancy: A reentrancy attack on a smart contract happens when an unsecured external contract is called back into the original contract. It authorizes it to drain funds before the original contract updates its state.

B. Integer Overflow/Underflow: Arithmetic operations that produce a number exceeding a variable’s maximum or minimum capacity can cause unexpected calculations and potential vulnerabilities.

C. Frontrunning: Nasty actors observe pending transactions and submit their own transaction with a higher gas fee to be processed first, influencing the outcome for profit.

D. Logic Errors: Errors in the contract’s business logic that cause its manner to turn from its planned functionality, potentially leading to financial failures or system fluctuation.

E. Denial of Service: Vulnerabilities that permit an attacker to make a contract inaccessible or unresponsive, potentially by destroying all available gas or forming an endless loop.

F. Centralized Risks: Rather than forming reliance on single points within a decentralized system, it creates single points of failure and cuts the protocol’s overall security.

G. Price Oracle Manipulation: Using vulnerabilities in how a contract recovers external data, managing contract logic, and initiating financial losses.

Popular Tools for Smart Contract Auditing

There are numerous tools for auditing smart contracts, among which some of the great ones include:

A. MythX: It is a cloud-based service that checks for security issues, from reentrancy to unhandled exceptions. It blends seamlessly into development workflows, making it popular among developers.

B. Slither: This tool is widely acknowledged for its speed. It is a static research tool that can easily determine issues like unused variables and incorrect legacy patterns.

C. Echidna: This is an amazing fuzz testing tool that is significantly useful at stress-testing smart contracts by tossing unexpected inputs at them to see how they react.

These are some ideal tools that work by examining the codebase, simulating scenarios, and highlighting areas of concern that require further attention.

Best Practices for Smart Contract Security

Auditing smart contracts is not just about following a checklist, but it is also about involving proven techniques to ensure a comprehensive and adequate review. Considering all the pros and cons, here are some of the best methods that can set the benchmark for smart contract audits:

A. Prioritize Code Simplicity

Complex codes are usually breeding grounds for bugs and vulnerabilities. So, considering this, developers should choose to keep their code as simple and modular as they can. Further, auditors should concentrate on recognizing unnecessary intricacy or tightly coupled processes that could lead to remote risks.

B. Utilize Both Manual and Automated Methods

Comparing both, the hybrid approach is key to a thriving audit; typically, automated tools excel at recalling common vulnerabilities. On the other hand, manual reviews are also crucial and are essential for capturing subtle issues. Combining both ensures exhaustive coverage of the codebase.

C. Follow Established Standards

Sticking to a recognized framework significantly improves the quality of your smart contracts. These standards deliver a solid foundation and help auditors identify the best practices, respectively.

D. Test Extensively

Testing is not just a process; it is an endless effort. For this process, the auditor should confirm that all the contracts have been subjected to tests, such as unit tests, integration tests, and fuzz tests.

E. Collaborate with Developers

Connection with auditors and developers plays a crucial role. Every developer should be ready to explain their design choice, while auditors must offer their valuable feedback. This collaboration between both makes the auditing process smoother and more effective.

Conclusion

In the fast-paced world of blockchain, security is considered a major concern, and that’s where smart contract audit steps in. By carefully reviewing code, testing for vulnerabilities, and following best practices, audits ensure your project runs smoothly and earns user trust.

Whether you’re launching a DeFi platform, NFT marketplace, or any blockchain-based solution, prioritizing a smart contract audit is a must. So, to simplify your auditing process, all you require is a partner who can assure you have strong credibility, and above all, partnering with Technoloader is an outstanding option.

With our extensive experience, tailored services, and scalable solutions, our team of experts ensures you have error-free and seamless smart contract development.