6 Steps to Smart Contract Audit

Smart contract audits are widely used within the DeFi ecosystem to thoroughly examine a protocol’s code, aiming to spot bugs and inefficiencies and solve these issues. Ensuring that smart contracts are tamper-proof is critical, making audits an essential part of the security process for any blockchain project.

While code audits are crucial for any application, they are exceptionally vital for decentralized applications (dApps) because the blockchains they rely on are immutable. If a vulnerability in the code leads to the loss of user funds, those funds cannot be recovered. Over $5 billion has been lost to hacks in the DeFi space. 

This article will explore 6 Steps to smart contract audits and the common vulnerabilities to watch for. 

Smart Contract Audit’s Importance in the Blockchain Industry

Smart contracts are versatile tools that track the movement of physical assets and intellectual property and facilitate and verify financial transactions. Since they can autonomously manage and allocate valuable resources within complex systems, ensuring their security and reliability is paramount. 

Understanding the likelihood and severity of potential contract flaws or identified errors is crucial for maintaining smart contract security. A thorough security audit of a smart contract dives deep into the project’s code, serving as a necessary measure to safeguard the funds entrusted to it. 

Since blockchain transactions are irreversible, any stolen funds cannot be recovered. Therefore, the smart contract audit process emphasizes carefully reviewing the code that governs the contract’s terms and conditions. It allows developers to promptly identify and address vulnerabilities and flaws before deploying the contract, ensuring higher security. 

Making changes becomes more complex once a smart contract is deployed within a decentralized protocol. It takes time and effort. If there is a vulnerability in the code, it can—and likely will—result in the loss of funds. Even minor bugs can cause significant financial losses for Web3 users once a project is live. In recent years, such vulnerabilities and subsequent hacks have led to billions in losses within the DeFi industry. 

Smart contract auditing has become essential for dApps for several key reasons: 

• Enhancing user confidence: Having security experts thoroughly review a smart contract’s security and performance helps build trust among users and investors. It reassures all stakeholders that their investments are more secure than those in unaudited dApps. 

• Avoiding costly errors: Given the immutable nature of the blockchain, it’s crucial to audit the code during the development phase. Discovering a severe flaw post-launch may necessitate deploying a new smart contract, which is costly and time-consuming. 

• Objective evaluation: Smart contract audits are usually conducted by independent entities separate from the original code developers. This ensures an unbiased assessment of the contract’s code, functionality, and security. 

Costing of Smart Contract Audit

The cost of a smart contract audit can vary based on the application’s size and complexity. Generally, auditors charge between $5,000 and $15,000, though the price may be higher for more intricate contracts. 

A smart contract audit from an experienced team is essential if you use a blockchain application. Since smart contracts handle financial transactions and critical operations, having bug-free code is crucial, making an audit necessary. 

6 Steps of Smart Contract Audit

Smart contract audits use various techniques and tools to identify and address vulnerabilities, strengthening the overall security of protocols. 

Step 1: Collect Documentation The audit process begins with the project initiating a code freeze and providing auditors with essential technical documentation. This includes the codebase, whitepaper, architecture, and other relevant materials. The documentation should offer auditors a comprehensive overview of the code’s objectives, scope, and specific implementations. 

Step 2: Automated Testing Also known as formal verification, automated testing examines every possible state of the smart contract, flagging any issues that could compromise its functionality or security. Auditors may also run integration tests, unit tests on individual functions, and penetration tests to uncover security vulnerabilities. 

Step 3: Manual Review A team of security experts conducts a thorough line-by-line code review, identifying errors and vulnerabilities. While automated tools are effective for finding bugs, human auditors are better equipped to detect logical or architectural flaws, poor coding practices, opportunities for gas optimization, and vulnerabilities to common attacks like frontrunning. 

Step 4: Classification of Contract Errors Each identified error is classified based on the potential severity of the exploit: 

• Critical: Affects the safe operation of the protocol. 

• Major: Includes centralization and logical errors that could lead to loss of user funds or control over the protocol. 

• Medium: Impacts the platform’s performance or reliability. 

• Minor: Involves inefficient code that doesn’t threaten the application’s security. 

• Informational: Pertains to style or adherence to industry best practices. 

Step 5: Initial Report Auditors draft an initial report summarizing the code flaws and other issues and recommending fixing them. Some auditing services offer teams that assist in correcting these bugs. By addressing all the problems identified, projects can ensure their smart contracts are fully prepared for deployment. 

Step 6: Publish Final Audit Report The final audit report includes all findings, with each issue marked as resolved or unresolved. This comprehensive report is shared with the project team and often made public to provide full transparency to users and stakeholders. 

Significant Vulnerabilities in Smart Contract

Timestamp Dependency 
Unlike traditional programs, miners control the execution environment of a smart contract. If a contract’s logic depends on the current time, miners can manipulate the timestamp to alter the execution outcome, potentially achieving a desired goal. 

Function Visibility Errors 
In Solidity, a function’s default visibility is public, meaning anyone can access it unless specified otherwise. If a developer forgets to set a function as private, critical tasks like a Destruct function could be easily accessed, potentially leading to the immediate destruction of the contract. 

Reentrancy Attacks 
One of the most severe vulnerabilities in Solidity smart contracts is the reentrancy attack. This occurs when a function makes an external call to an untrusted contract, which then recursively calls back into the original function, potentially draining funds. Such vulnerabilities often arise from a developer’s negligence. 

Random Number Vulnerability 
Contracts that use publicly known variables as seeds to generate random numbers are susceptible to attacks. An attacker can predict the random number accurately, compromising the contract’s security. 

Failure in Differentiating Humans and Contracts 
Failing to distinguish whether a smart contract caller is a human or another contract can lead to unexpected consequences. For instance, in the Fomo3d game, a hacker could accurately predict a contract’s timestamp and exploit the airdrop function to earn money. 

Spelling Mistakes
Spelling errors in contract functions, particularly constructors, can have serious consequences. If a constructor is misspelled, the function might be exposed as public, allowing anyone to call it and potentially take control of the contract.

Time Complexity of Smart Contract Audit

The duration of a smart contract security audit varies depending on the code’s size and complexity. An audit team can typically produce a detailed report within a few days. However, more extensive applications may require additional time for a thorough review. Allocating sufficient time for a comprehensive security audit is crucial to ensuring the success of your blockchain application. 

Top Smart Contract Audit Firms

CertiK, a prominent blockchain security firm, led smart contract security audits. Notable projects like BNB Smart Chain, Bancor, and Huobi have all undergone audits by CertiK. Additionally, the Binance Accelerator Fund mandates CertiK smart contract audits before investing in any project.

Softstack, a renowned smart contract auditing firm established in 2017, counts top DeFi protocols like 1inch and MakerDAO among its prestigious clients. OpenZeppelin, another key player in the auditing space, provides services to prominent companies like Coinbase and the Ethereum Foundation, ensuring the development of secure Ethereum smart contracts through its modular contract templates.  Other reputable firms include Trail of Bits, SlowMist, and Quantstamp. 

Webmob Software Solutions is a premier smart contract development company specializing in blockchain, AI, and cybersecurity. It also offers comprehensive smart contract audit services. With a decade of experience and a talented team, Webmob is dedicated to building secure, scalable, and user-friendly solutions for the blockchain industry, positioning it as one of the world’s best smart contract development service firms. 

For more comprehensive details, contact our smart contract development & smart contract auditing experts at info@webmobinfo.ch