Smart Contract Security Audit: A Comprehensive Guide

Smart contracts have revolutionized the blockchain industry by providing a decentralized platform for executing transactions without any intermediaries. However, the security of smart contracts is a critical concern, considering the vast amounts of value that they transact and hold. In this article, we will explore everything you need to know about smart contract security audits, including their importance, the audit process, vulnerabilities, cost, and much more.

What is a Smart Contract Security Audit?

A smart contract security audit is a comprehensive analysis of a project's smart contract code. The audit process involves a thorough review of every line of code to identify any bugs, vulnerabilities, or potential risks. The main aim of a smart contract security audit is to ensure that the smart contract is as secure as possible and to provide solutions to address any identified issues.

While blockchain projects are open-source, most people lack the expertise to inspect the smart contract code themselves. Smart contract auditors help users make informed decisions by identifying, explaining, and remediating potential risks. This is an essential process that ensures the success and survival of blockchain projects, considering that all transactions on the blockchain are irreversible.

Why Are Smart Contract Security Audits Important?

Smart contract security audits are crucial for the following reasons:

• Protection against Cyber Attacks
• Smart contracts are attractive targets for malicious attacks from hackers due to the vast amounts of value they transact and hold. Minor coding errors can lead to significant losses. For instance, the DAO hack on the Ethereum blockchain took roughly 60 million USD worth of ETH and even led to a hard fork of the Ethereum network. Smart contract security audits are essential to prevent such attacks and protect the funds invested through them.
• Avoid Costly Errors
• Auditing smart contract code early in the development lifecycle can help avoid potentially fatal flaws after launch. Smart contract security audits help detect and fix vulnerabilities before they cause significant losses or security breaches.
• Enhanced Security
• Smart contract security audits offer assurance to the owners of decentralized products that their code is safe and secure. This gives investors and users confidence in the project and can contribute to its success.
• Continuous Security Assessment
• The smart contract auditing process allows for ongoing security assessments, improving the development environment and ensuring that the smart contract code remains secure.

How to Perform a Smart Contract Security Audit?

The smart contract security audit process typically follows the steps below:

1. Scope of the Audit

The first step in a smart contract security audit is to determine the scope of the audit. The project team provides smart contracts and project specifications to the audit team, defining the contract's intended purpose and overall architecture. A specification helps the audit team understand the project's goals when writing and using the code.

2. Initial Analysis

The audit team performs an initial analysis of the smart contract code to identify any areas of concern. This may involve manual or automated testing, or a combination of both.

3. Present Findings to the Project Team

The audit team presents their findings to the project team, highlighting any issues found, and provides recommendations on how to address them.

4. Changes Made by the Project Team

The project team makes changes to address the issues raised by the audit team.

5. Final Report

The audit team produces a final report detailing any outstanding errors and the work already done to address performance or security issues. The final report is published, and the project team takes action to address any remaining issues.

Smart Contract Audit Methods

Smart contract auditors use various methods to identify vulnerabilities and potential risks. Some of the common methods include:

Manual Code Analysis

Manual code analysis involves a group of experts scrutinizing each line of code for compilation and re-entry problems. This method is considered the most accurate and complete since it detects hidden defects such as design difficulties rather than just code errors.

Automated Code Analysis

Automated code analysis uses bug detection software to help smart contract auditors locate the exact location responsible for errors. This approach is faster than manual auditing and helps find vulnerabilities much faster. However, automated software may not always understand the context and can miss vulnerabilities while checking code.

Gas Efficiency

Smart contract audits also look at efficiency and optimization. Some contracts make a complicated series of transactions to complete their intended function, which can lead to high gas fees on networks like Ethereum. Efficient contracts can save a lot on transaction costs.

Contract Vulnerabilities

Auditors check contracts for security vulnerabilities, such as reentrancy issues, integer overflows and underflows, and front-running opportunities.

Platform Security Flaws

Most audits include looking at the network hosting the contracts and even the API used to interact with the DApp. A project may be vulnerable to a DDoS attack or have its website UI compromised, meaning users will actually connect their wallets to malicious blockchain applications.

Common Vulnerabilities in Smart Contracts

Smart contracts are not immune to vulnerabilities, and auditors typically look for the following:

Reentrancy Issues

When a smart contract makes an external call to another external contract before any effects are resolved, the external contract can then recursively call the original smart contract and interact with it in ways it shouldn't be able to, as the original contract's balance hasn't yet been updated.

Integer Overflows and Underflows

When a smart contract carries out an arithmetic operation, but the output exceeds the storage capacity (usually 18 decimal places), this can lead to incorrect amounts being calculated.

Front Running Opportunities

Badly structured code can provide forewarning of market purchases or sales, which can allow others to use the information and trade on it for their own benefit.

Random Number Generation

An attacker can accurately guess the random number generated by a contract that employs a publicly known variable as a seed.

How Much Does a Smart Contract Security Audit Cost?

The cost of a smart contract security audit varies from project to project and depends on the complexity of the code. On average, smart contract auditing providers charge between $5,000 and $15,000, although the price can be significantly higher in specific situations. The cost is generally high due to the time-consuming and complex task of checking the code row by row.

Smart Contract Auditing Firms

Several smart contract auditing organizations are securing the crypto ecosystem. Some of the most popular firms include:

CertiK

CertiK is an industry leader in smart contract auditing, with hundreds of projects audited using their services. PancakeSwap, BSC's largest Automated Market Maker (AMM), is one example. CertiK also covers BSC and Polygon projects, providing a safety score for audited projects.

ConsenSys Diligence

ConsenSys Diligence offers Ethereum smart contract audits and an automated service that checks Ethereum Virtual Machine (EVM) contracts for commonly found mistakes. The company is run by Joseph Lubin, a co-founder of Ethereum.

How to Become a Smart Contract Auditor?

Smart contract auditing mandates programming knowledge since it involves checking code line by line. To become a smart contract auditor, you need to understand the basics of the Ethereum blockchain and Solidity (the programming language used to write Ethereum smart contracts). Reading the Ethereum documentation and taking courses on fundamental blockchain technology are good places to start. Having a financial background is also an additional benefit.