A smart contract security audit verifies the underlying code of a smart contract. It looks into potential security vulnerabilities and other coding issues on the project.
Smart contracts serve as an agreement between two or more people involved in cryptocurrency transactions, such as trading, investing, lending, and borrowing.
Unlike typical contracts, smart contracts are not written on paper, but instead built into the cryptocurrency network’s code, and then encrypted and stored in the blockchain network.
The audit is important in many ways, from the prevention of security attacks to make sure correct data is placed in the blockchain.
Let’s examine further details about smart contract security audits below.
Why are smart contract audits important?
Prevent security attacks
This is the topmost priority for smart projects. Transactions made in smart contracts are targets of cyber-attacks, which means minor coding errors can lead to money being stolen. Given the volumes of transactions — which, as we mentioned, cannot be reversed — ensuring a project’s code is secure becomes crucial.
The smart contract auditing process allows project owners to have experts look into their network’s code and conduct security assessments, allowing the project owners to improve their code and avoid cyber-attacks.
Avoid expensive costs from coding errors
Conducting smart contract security audits into a smart contract’s code during the early phase of its creation can help project owners avoid costs involved in fixing fatal errors in the code when damages have already occurred.
It makes your smart contract credible
The best way for any project to be “taken seriously” is to undergo this audit. Investors are likely to trust a project to handle multi-million dollars worth of blockchain transactions for those projects that underwent security audits. Similarly, since audit providers are usually credible in the industry, their audits become valuable for newly-created projects.
How do smart contract security audits happen?
There are a series of steps involved in smart contract security edits. Here’s the step-by-step process:
1. Providing specifications
The cryptocurrency project managers usually provide auditors with the specifications of the project, such as its purpose and the overall architecture. This helps the auditor to understand the objectives of the project when writing the code.
2. Running tests
The auditing team will then go over the code and run their tests. They will look into security vulnerabilities, which could include simulating malicious attacks on the contract. The auditing team will also examine the project’s adherence to the style guide of the code. For example, there is a style guide for the Solidity Code, a coding language used for making smart contracts, specifically for Ethereum.
The examination will also involve the network hosting the contracts and the API used to interact with the Decentralized application, a platform used for various cryptocurrency transactions, including smart contracts.
3. Initial Assessment
Based on this, the auditing team will provide an initial assessment report to the project team involving errors found in the code. This initial report will list issues found based on their severity:
High: can cause legal and financial impacts
Medium: can bring moderate financial impacts and may bring ramifications to clients in the form of personal information breaches or lawsuits.
Low: Minor risk.
Informational: Will does not cause initial risks but calls for changes necessary for security recommended practices.
4. Rectifying flaws
The smart contact owners are given time to rectify coding issues found by the auditing team, in response to the risks found, including the examples of redundant codes.
5. Publishing final findings
Once improvements to the coding of the smart contract have been made, the auditing team will publish a final report, specifying the action taken by the project team to address issues.
Types of smart contract auditing
In this type of smart contract security audit, the team will look over every line of code for potential problems and security vulnerabilities, such as poor encryption practices. This process can help find hidden defects, such as issues with the code design.
The automated smart contract auditing process uses bug detection software to locate errors. This process is useful for projects that require faster time-to-market. The con of this process is that the automated software can miss vulnerabilities because the tool may not always understand the context of the code.