How to Audit Smart Contracts and Why It’s Important

If you have been using blockchain for your business, you already know about its multiple advantages, such as transparency, traceability, decentralization, and security. However, please don’t fool yourself by thinking that you don’t need to worry about security because even this sophisticated technology based on smart contracts (SCs) has its flaws. The infamous DAO attack, which happened because a coder found a loophole in SC, resulted in the loss of 3.6 million Ether in 2016. The attack led to chaos and undermined the hopes and dreams of users who relied on the system’s security and safety.

Since that time, companies have paid greater attention to identifying and addressing weaknesses in the blockchain system. If your business relies on blockchain, you also need to perform the smart contract audit to mitigate security risks associated with the SC use and protect users’ data and money. This article written by 4IRE examines the process of auditing SCs and describes how to conduct it and why it is essential. 

What Is Smart Contract Audit and Why It Is Important?

SC audit is similar to a conventional code audit performed to identify security vulnerabilities before introducing the code in the public network. After the code is deployed, it would be impossible to subject it to change. The main areas that smart contract auditors pay attention to include specific design features, tradeoffs, and considerations. This process is better performed by an external auditor because the developer may miss some critical errors and be unable to look at their smart contract with fresh eyes. Given the smart contracts’ programming complexity, it is not surprising that even the top developers make mistakes.

The decentralization and transparency of the blockchain network imply that users are expecting this system to be secure. There is no better way to make them trust your product than to demonstrate the results of smart contract auditing and prove that their data and assets are well-protected, especially if you use asset tokenization. The results of auditing are also essential for investors, especially in the current competitive blockchain market. If your blockchain powers your FinTech innovation, it is even more critical to ensure that the system is secure and immutable. In addition to using a reputable DeFi development company, you need to conduct auditing to make the public trust you.

How Need to Audit Smart Contract: Problems Requiring Auditing

There are many issues that SC auditing should be able to prevent. These include byte array vulnerability, replay attack, reordering attack, short address attack, etc. The following list contains some of the most dangerous vulnerabilities that may compromise the security of your blockchain.

Reentrancy

The repeated entry causes this attack. The attacker develops a malicious code in the fallback function of the contract address. Once the assets are sent to the vulnerable contract account, it performs the fallback function and triggers the malicious code. As a result, the attacker can steal the contract’s assets. The DAO attacks are the most famous example of the reentrancy problem. Therefore, SC auditing should pay attention to the fallback function, withdraw function, and other functions (e.g., send, call, transfer, etc.).

Timestamp Dependence

This potential vulnerability occurs in smart contracts that use the block timestamp to manage the execution of some key operations. An attacker with significant computational power can change the block timestamp to hamper the execution of those essential operations and get an output in their favor. Auditing helps examine the timestamp uses, especially if transaction time is crucial (e.g., in a betting contract).

Cross-Function Race Condition

This common problem occurs when functions have the same state and solution. For example, someone can externally call transfer when the balance has not yet been set to 0. In this way, this person can steal the tokens even though the withdrawal has already been made. Auditors should check whether it is possible to call one function halfway through the other function’s execution and suggest changes that could prevent or minimize the risk of such operations.

Over- and Underflow Attack

Smart contract programming languages can also be subject to the underflow attack, which occurs when the value of a unit type variable exceeds the maximum by one. In such cases, it rolls back to zero and vice versa. Attackers using this vulnerability employ a transfer that subtracts the balance beyond the minimum, which results in a high number of credits. This vulnerability threatens users’ assets and can be detected through smart contract auditing.

Gas Limit and Loops

Each block has the maximum amount of gas that can be spent on a transaction. If the consumed gas exceeds the allowed maximum, it leads to transaction failure. The out-of-gasp problems account for about 90% of all exceptions on Ethereum and cause significant financial losses. SC auditing helps detect contracts with gas-related vulnerabilities and come up with changes to address this issue (e.g., develop a gas estimation service).

How Do You Audit a Smart Contract?

Manual vs. Automated Audit

SC auditing can be performed both manually and automatically. Manual code analysis helps check the list of common vulnerabilities and depends on an auditor’s experience. This approach is reliable and accurate, as it can detect bugs in the code and complex issues in contract logic and architecture. An automated audit is faster as it involves using specific bug detection programs. Auditors often begin by using automated analysis and then manually confirm the results to produce a comprehensive report.

How to Perform a Smart Contract Audit for Your Business: Key Steps

Auditing is a complex process that involves many steps:

• Prepare a contract for an external audit. You can run some of the tests yourself (e.g., check for reordering, replay, and short address attacks; check for possible race conditions; check for compiler warnings, etc.). In other words, do what you can to ensure that auditors spend more time detecting security issues rather than simple, functional bugs.
• Freeze the code, as it is easier for auditors to examine a static code.
• The next stage involves auditing by an external developer. This professional or a team of professionals will collect code design models to review architecture. They also perform unit testing and manual analysis. Auditors determine whether SC functions consume an adequate level of gas, verify gas limits of functions, and document the intended behavior of the smart contract. At this stage, auditors may use various tools such as Truffle, Manticore, Smart Check, Oyente, Solium, Slither, Populus, and many others to conduct automatic testing. 

• Based on the identified issues, the report is then produced and presented to the client. This report may state that the information is not intended to provide legal security guarantees. However, it does not mean that it signifies the low quality of the report. Auditors use such statements to protect themselves from unjustified accusations in case smart contracts are compromised later. 
• A good report provides a detailed list of all vulnerabilities and errors. Auditors can list them in order of their severity and suggest fixes. They also discuss the potential points of concern that do not necessarily require urgent action.
• When the suggested changes are introduced, the auditing team verifies the smart contract to check for any remaining glitches and anomalies.

How to Audit Smart Contract: Things to Consider

Audit Risks

Unfortunately, audits cannot guarantee the safety of your smart contracts. Audits can be forged, which means that they have either not been conducted or are performed by inexperienced developers. In the crypto world, shady developers can attract customers by assuring them that they provide reliable services, while in reality, they lack the competence to do so. Therefore, select reliable auditing services and ask for confirmation that the audit has been conducted.

Another risk that you should be aware of is the use of GitHub repositories, which some auditors can abuse. Instead of offering a smart contract that the GitHub community has truly checked, they can offer a vulnerable one. Therefore, always check whether the smart contract you obtain through the GitHub repository has been appropriately audited.

Finally, it is always helpful to remember that smart contract auditors are not always as trained and competent as you would wish. Some companies hire inexperienced auditors that lack skills and knowledge and may make errors. If you want to be 100% sure of the quality and security of your SC, hire only the best professionals and always check their background and experience. Search for teams having extensive experience in blockchain development and auditing.

How Long Does a Smart Contract Audit Take?

We all know that time is money, so you probably wonder how long smart contract auditing takes. Well, everything depends on the complexity of the project. A simple smart contract can be checked for a couple of days, while advanced contracts require more time. Be prepared to wait for about a month for the audit to be performed. We recommend including smart contract auditing in your development plan to avoid unexpected delays.

How Much Does It Cost?

Auditors can charge differently for smart contract auditing depending on the complexity of the code, its quality, and the external services selected. Hiring an experienced team of auditors who would perform a fast and comprehensive analysis may be expensive. Their services may cost up to $15,000, so it can take a significant proportion of your project’s budget. If you are on a tight budget, you can use free online services. However, be prepared to wait longer for the report to be presented. 

SC Audit Services

The best way to check the potential vulnerabilities of your smart contract is to hire an external auditing company. An external auditor can use different auditing programs to evaluate the security and accuracy of the code. As a result, they will provide you with a list of issues and concerns that you will need to address. Blockchain consulting services such as those provided by 4IRE are always a good option if you want your smart contracts to be immaculate. Other companies you can consider are Paladin, Consensys Diligence, Obelisk, OpenZeppelin, Trail of Bits, and others. 

If you are confident that you possess enough experience and knowledge to conduct auditing yourself, you can take advantage of the information available online. For example, some large auditing companies publish past cases of smart contract auditing. These cases demonstrate examples of vulnerabilities and explain how each was fixed. However, this option works only for highly experienced developers and cannot always be a reliable alternative to external auditing.

There are also online resources that may help you check your smart contracts. For example, you can use the Solidified service, a platform where anyone can publish their smart contract to obtain an independent review. Your code will be examined by developers and Solidified experts, who will then provide suggestions as to how you can fix the issues. However, the tool is a work in progress and may suit all types of smart contracts. In addition, you may use free auditing resources such as Echidna, but these are less reliable than external auditing performed by a smart contract auditing company. 

Audits Are Strategically Important 

Any startup or existing business using blockchain and smart contracts can benefit from SC auditing. It makes services more reliable and secure and ensures that customers’ assets and data are not stolen. Although smart contract auditing is a complex and expensive process, it is worth the resources because it establishes credibility among the stakeholders. If you have additional questions about auditing, you can use the 4IRE services. We are always ready to help you with making your blockchain-based business successful.