A beginners guide to a smart contract security audit.

The smart contract audit explained

When new businesses are created, there is always a need for foundational services such as accounting and legal. The same is true in the blockchain industry, where a new type of service has emerged: security auditing for smart contracts. A security audit is critical to ensuring that your contracts are safe and secure, and this guide will introduce you to the basics of how they work.

Smart contracts are computer programs that can automatically keep track of the movement of physical assets and digital information. They can also help to set up financial transactions between different parties, making sure that these happen smoothly and as agreed upon. Because smart contracts often have a lot of power – for example, they can control large amounts of money – it is important that they are very secure and always work correctly.

When investing in a project, it is essential to understand the likelihood of possible contract flaws or discovered errors. A smart contract security audit examines the smart contracts of a project and can discover any potential issues. By doing this, you are protecting your investment.

Once cryptocurrency funds are taken, they cannot be recovered because all transactions related to blockchain technology are final.

Here, the “smart contract audit method” refers to analysing the code supporting a smart contract’s terms and conditions. By doing this, developers can preventively identify vulnerabilities and faults before deploying any smart contracts.

Have you ever wondered how smart contract auditors find vulnerabilities in contracts, or why audits are even necessary? This article will explore those topics and more to give you a comprehensive understanding of the role of the auditor.

Why is the smart contract security audit important?

Currently, security is one of the most discussed topics when it comes to smart contract deployment. If we want to avoid inefficiency, security threats, and misbehaviour, we need to be careful about the blockchain network we use for our smart contracts. Otherwise, we might have to pay very high additional costs.

In addition, even small coding mistakes can lead to large-scale money theft. For instance, the DAO breach on the Ethereum blockchain stole approximately $60 million in Ether (ETH), necessitating a hard fork of the Ethereum network.

Given that smart contracts are unchangeable, businesses deploying them fear the ramifications of any errors. Additionally, security flaws in these contracts could lead to losing the entire agreement and its associated assets. Consequently, auditing smart contracts has become an urgent necessity for the following reasons:

• By auditing your code early on in the development process, you can catch and avoid errors that could be costly or even lead to failure after launch.
• Here’s what experts are saying: Veteran security auditors will run your code themselves to double check for errors.
• Security attacks can be prevented by constantly monitoring your code for any security flaws.
• Smart contract security audits provide assurance to owners of decentralised products that their code is secure.
• Continuous security assessment: The smart contract auditing process allows you to conduct ongoing security assessments, which will eventually improve your development environment.
• With our analytical reports, you’ll receive an executive summary, vulnerability details, and mitigation advice all in one report.

How to perform a smart contract audit?

A smart contract audit service does much more than simply check for known vulnerabilities. It also assesses each smart contract against the Solidity Code Style Guide, checking for logical and access control concerns. This allows you to be sure that your contracts are as secure as possible before they go live.

Although standards for smart contract security audits differ among organizations, these audits can typically be conducted through manual or automated approaches (further elaborated upon below).

Manual auditing

Conducting a manual audit requires a team of professionals to scour each line of code for compiling and re-entry errors. Furthermore, this can help locate other security risks that are often ignored, such as inadequate encryption methods.

This method is more accurate than others because it detects hidden design defects in addition to code errors.

Automated auditing

On the other hand, the automated smart contract auditing approach uses bug detection software to pinpoint responsibility for errors. Projects that need a quicker turnaround time generally prefer an automated approach because it identifies vulnerabilities much faster. Though, automated software might not always catch contextual clues and could overlook code-based vulnerabilities.

The process of auditing a smart contract

Although smart contract audits may vary from auditor to auditor, they typically follow the same procedure. The steps are as follows:

Code design models worth collecting

Prior to integrating a third-party smart contract, auditors assemble the code specifications and research the architecture. This gives them an understanding of the objectives of the project and allows them to decide it’s parameters.

Run unit tests

Auditors test each smart contract function by creating different test cases. Audit specialists use manual and automated tools to make sure that the unit tests cover all of the code in the smart contract.

Select auditing approach

As auditors can manually inspect smart contracts more efficiently than with automated software, they often do so without any software help. With this approach, attacks like front-running can be much more easily detected.

Draft the initial report

After auditing your code, our team will provide you with a report of all errors discovered and how to fix them. Some smart contract service providers have a team of experts who can help fix each bug found.

Publish the final audit report

Once the bugs are eliminated, auditors release the authoritative report, which encompasses any steps taken by the project team or outside professionals to address the problems that were brought up.

Key vulnerabilities in smart contracts

The following section provides an overview of typical security vulnerabilities in smart contracts:

Timestamp dependency

The key difference with this program is that the contract’s execution environment is dependent on the miner. Consequently, the miner can use their influence to change the current time and thereby impact the outcome of the contracted logic.

Function visibility errors

A function’s default visibility property in Solidity is public. Unless a developer specifies that a function is private, anyone can access it. For example, if a forget to set the Destruct function to private, anyone can call it and immediately destroy the contract.

Reentrancy attacks

The reentrancy attack is one of the most devastating attacks a Solidity smart contract can face. This can be caused by the developers own carelessness and lackadaisical attitude. When a function makes an external call to another untrusted contract, it’s called a reentrancy attack. Then, in effort to siphon funds, the untrustworthy agreement make s a recursive call back to original function.

Random number vulnerability

If a contract employs a publicly known variable as its seed, an attacker can guess the random number generated by that contract with ease.

Failure in differentiating humans and contracts

If you don’t figure out whether the smart contract caller is a person or another contract, it could result in serious issues. For example, by picking the right block in the well-known Fomo3d game, somebody could get money from the airdrop function (like when they accurately forecast a contract’s timestamp).

Spelling mistakes

Constructors are commonly used for contract initialization and determining the contract’s owner. However, if a programmer misspells the function name during coding, the compiler will not notice it. As a result, the function will be public and anyone would be able to call it.

Solidity functions are used to set the state variables of a contract, which is invoked when the contract is first created. These types of constructors include public and internal. The Solidity programming language is compiled using a Solidity compiler, transforming it into byte code for smart contract deployment along with other necessary pieces.

For example, if the HelloWorld contract’s function is misspelled as Helloworld, any user can execute the Helloworld function and change the contract’s owner.

How much does a smart contract audit cost?

Smart contract auditing providers usually charge between $5,000 and $15,000 depending on the complexity of the code. In some cases, the price can be much higher. The auditing firm produces a report that contains information about the code’s potential weaknesses and makes suggestions on how to improve its security.

Smart contract audits are expensive because they are complex and time-consuming. A smart contract auditor has to check the code line by line, which can take a lot of time. 

Although it costs money, the smart contract auditing process is crucial to fix code flaws. Without fixing these flaws, security vulnerabilities could develop and result in even greater costs than the original fee for the audit. So, how long does a smart contract audit take? The answer depends on several factors:the size of the project, urgency, and length of the smart contract. On average though, the first smart contract audit usually only takes two weeks at most.

For large projects or protocols, the initial audit could take up to a month. Afterward, the client receives recommendatons for fixes they should implement. Because every client is different, the amount of time it takes to correct errors varies. Lastly, we conduct a remediation check (usually taking only one day) before concluding our work with the client.

How to become a smart contract auditor?

If you want to thoroughly audit a smart contract, be aware that it will take years to hone your skills unless you have pre-existing programming knowledge.

A great way to learn any blockchain technology or programming language is by actually using it. If you want to understand Ethereum and Solidity, start by reading the Ethereum documentation and taking courses that cover basic blockchain technology.

Different blockchains use different programming languages, so please take some time to read our guide and become familiar with the most popular ones used in NFT development.

If you have a financial background, it is beneficial when auditing decentralised finance (DeFi) projects. The majority of DeFi projects use standard finance terms; as a result, the auditor must comprehend fundamental financial terms like crypto derivatives in order to audit a smart contract proficiently.

Smart contract auditing firms

Now that we understand how critical smart contract auditing is for security, let’s explore some of the organisations doing this work.

CertiK is a web and blockchain security organisation that specialises in smart contract security audits. To date, they have audited BNB Smart Chain, Bancor, and Huobi. Furthermore, the Binance accelerator fund will not invest in any project until CertiK has thoroughly vetted it via audit.

Chainsulting is a well-known smart contract auditing firm that was founded in 2017. Its top clients include 1inch, MakerDAO and other well-known DeFi protocols. Additionally, OpenZeppelin provides auditing services to Coinbase and the Ethereum Foundation, two of the most prominent companies in the blockchain world. Furthermore, it ensures the creation of safe Ethereum smart contracts through its modular contract templates.

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