A minor bug or flaw in your smart contract's code can potentially result in a massive financial loss, with further serious reputational damage. An audit of your smart contract will strengthen your credibility in the community to make your profits higher.
Although blockchain is secure itself, the applications based on it can be fragile. These apps use smart contracts to connect to the blockchain, but as with any software, bugs in the code can cause security issues.
Compared to many other types of software, blockchain apps often directly operate financial assets. Errors can lead to the loss of significant sums of money, as in the infamous DAO hack. While having bug-free code is good in other types of software, it is crucial in blockchain applications. To make sure blockchain applications are safe, you need to audit the security of smart contracts for bugs and flaws.
A smart contract audit is a comprehensive, systematic investigation and analysis of the smart contract code used to deal with a cryptocurrency or blockchain.
What Is a Smart Contract Audit?
Before getting to know how a smart contract can be audited, let's take a brief look at what a smart contract is. Smart contracts are self-executing documents in which the terms of the agreement between buyer and seller are recorded straight in lines of code. As with any other software, smart contracts have security vulnerabilities. For this reason, the audit of a smart contract, which reviews and remarks on the project's smart contract code, is necessary.
Smart contracts are audited to detect bugs, problems, and security vulnerabilities in the code to propose solutions and fixes. These audits are complex since smart contracts often interact with each other, and any third-party system integrations can also lead to the system becoming vulnerable.
Therefore, inspections often apply to all other smart contracts engaged in any interactions. Such checks typically include both testing and manual analysis of the code.
Generally, auditors review the code for smart contracts, prepare a report, and provide it to the project to work with. A conclusive report is then issued describing in detail any remaining bugs and the work that has already been done to fix performance or security issues.
How Does a Smart Contract Audit Work?
Most of the vulnerabilities detected in smart contracts on the Ethereum network are related to the human factor rather than to technical aspects. Smart contract audits generally consist of several phases and reduce the chance of such vulnerabilities:
- First of all, the audit team is given the smart contracts to perform an initial analysis. Layout, purposes, architecture, and further smart contract specifications are shared with the auditors.
- This is followed by the testing stage when the auditors check individual functions (unit tests), and afterward bigger parts (integration tests).
- Automated bug detecting and analyzing tools can also be used to find widely known flaws in contracts. Auditors manually test the code to figure out the developer's intention and explain the obtained results in that context. The audit team delivers its conclusions to the project team to take appropriate actions.
- The project team then applies the required corrections based on the findings. Eventually, a report is prepared with conclusions and corrections applied by the team.
- In the end, the audit team issues its final report, taking into account any new updates or remaining bugs.
A report on the audit is presented at the end of the audit procedure. For transparency purposes, projects are required to share their conclusions with the community. In most reports, the issues are classified by severity, e.g., critical, major, minor, etc. The report also indicates the status of the problem as projects take time to address it before the final report is available.
Importance of Smart Contract Audits
Security is among the biggest challenges for the execution of smart contracts these days. Companies risk losing the entire contract and related assets because of security holes in smart contracts. Better code optimization; Enhanced smart contract performance; Increased wallet security; Protection against hacker attacks are the reasons why smart contract audits come to be an increasingly essential requirement. This makes it obvious that smart contract auditing could be a powerful instrument to achieve improvements in smart contract functionality.