What is a smart contract security audit? A beginner's guide

The smart contract audit explained

Smart contracts are adaptable instruments that can trace the movement of physical things and intellectual property and facilitate and verify financial transactions. Because smart contracts have the authority to allocate high-value resources between complicated systems and are, for the most part, autonomous, security and consistency are critical. 

Therefore, understanding the likelihood and critical nature of possible contract flaws or discovered errors is essential for smart contract security. A smart contract security audit examines the smart contracts of a project in depth and is necessary to protect the monies invested through them.

If funds are taken, they cannot be recovered because all transactions on the blockchain are irreversible.

Therefore, the smart contract audit method focuses on examining the code that underpins the smart contract's terms and conditions so that developers could quickly identify vulnerabilities and flaws before deploying smart contracts with the help of such an audit.

This article will discuss the key vulnerabilities in smart contracts and answer various questions on how smart contract audits are performed, why they are important and how to become a smart contract auditor.

Why is the smart contract security audit important?

Nowadays, one of the most pressing problems for smart contract deployment is security. Concerns about inefficiency, security, and misbehavior exist because ignoring them when using a blockchain network to create smart contracts could result in extraordinarily high additional costs. 

Furthermore, minor coding flaws can result in the theft of large quantities of money. The DAO breach on the Ethereum blockchain, for example, seized around $60 million in Ether (ETH) and resulted in a hard fork of the Ethereum network.

As a result, businesses are concerned about their deployment due to the irreversible nature of smart contracts. Furthermore, due to security flaws in smart contracts, you risk losing the entire contract and its related assets. Therefore, smart contract auditing has become a critical requirement in recent years for the following reasons:

  • Avoid costly errors: Auditing your code early in the development lifecycle can help you avoid potentially fatal flaws after launch.

  • Expert review: To eliminate spurious results, veteran security auditors manually double-check your code.

  • Prevent security attacks: As you write and alter code, keeping an eye on any security flaws helps prevent security attacks.

  • Enhanced security: Smart contract security audit assures the owners of decentralized products that their code is secure.

  • Continuous security assessment: The smart contract auditing process allows you to conduct ongoing security assessments, offering to improve your development environment.

  • Analytical reports: Receive an executive summary, vulnerability details and mitigation advice in a vulnerability report.

How to perform a smart contract audit?

A smart contract audit service provides checks for known vulnerabilities that apply to each smart contract's particular business logic. It also assesses conformance with the Solidity Code Style Guide and verifies that the smart contract is free of logical and access control concerns. Standards for smart contract security audits vary from project to project. Smart contracts can be audited using manual or automated approaches, as discussed below.

Manual auditing

Manual auditing entails a group of experts/auditors looking over each line of code for compilation and re-entry problems. This can also aid in detecting other security vulnerabilities that are often overlooked, like poor encryption practices.

Manual code analysis can take two forms: 

Because it detects hidden defects such as design difficulties rather than just code errors, this method is regarded as the most accurate and complete.

Automated auditing

On the contrary, the automated smart contract auditing approach uses bug detection software, which helps smart contract auditors locate the exact location responsible for errors. The projects that require faster time-to-market often prefer an automated approach because it helps find vulnerabilities much faster. However, automated software may not always understand the context and can miss vulnerabilities while checking code. 

Classification of code errors

Each source code flaw is classified according to its severity, considering the potential impact of the exploit to be: 

Difficulty of exploitation 

Another key characteristic of each flaw discovery is the difficulty with which it can be exploited: 

The process of a smart contract audit

A smart contract audit follows a very standard procedure and may differ significantly among smart contract auditors. The following is a typical procedure:

Collecting models of code design

To ensure the guaranteed integration of third-party smart contracts, auditors gather the code specifications and examine the architecture. This helps auditors understand the goals of the project and determine its scope.

Run unit tests

Then auditors test cases to put each smart contract function to the test. Audit specialists use tools (both manual and automated) to guarantee that unit test cases include the smart contract's overall code.

Select auditing approach

As manual audit is more efficient than an automated audit, auditors often inspect smart contracts without software help. With this approach, attacks like front-running can be efficiently detected. 

Draft the initial report

After auditing is completed, auditors draft the code flaws discovered and provide feedback to the project team to fix those errors. Some smart contract service providers have a team of experts that help fix each bug found.

Publish the final audit report

After the bugs are fixed, auditors publish the final report, taking into account any actions made by the project team or external experts to resolve the issues that were raised.

Key vulnerabilities in smart contracts

Common security vulnerabilities found in smart contracts are explained in this section:

Timestamp dependency

Unlike typical programs, the smart contract's execution environment is on the miner's side. When a contract's logic is dependent on the current time, the miner can manipulate the current time to influence the execution result and meet a predetermined goal.

Function visibility errors

A function's default visibility property in Solidity is public. As a result, anyone can access it if a developer forgets to define a private function's visibility. For example, anyone can call the Destruct function to destroy the contract immediately.

Reentrancy attacks

One of the most devastating attacks in the Solidity smart contract is the reentrancy attack. A developer's uncaring attitude can potentially lead to reentrancy issues. When a function makes an external call to another untrusted contract, it is called a reentrancy attack. Then, in an attempt to drain funds, the untrustworthy agreement makes a recursive call back to the original function.

Random number vulnerability

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

Failure in differentiating humans and contracts

Failure to identify whether the smart contract caller is a person or a contract could have unforeseeable repercussions. For instance, by correctly guessing the block in the popular Fomo3d game, a hacker can earn money via the airdrop function (i.e., by accurately predicting a contract's timestamp).

Spelling mistakes

Constructors are commonly used for contract initialization and determining the contract's owner. The compiler would not notice the misspelling of the function during programming, resulting in the function being public so that anyone can call. 

In Solidity, a function is used to set the state variables of a contract. When a contract is first constructed, the function is invoked, and it can be used to set initial values. There are two types of constructors: public and internal. Moreover, the Solidity code is compiled using a Solidity compiler, which produces byte code and other artifacts required for smart contract deployment.

Consider the case when the HelloWorld contract's function is misspelled as Helloworld; any user can execute the Helloworld function to change the contract's owner.

How much does a smart contract audit cost?

Smart contract auditing providers charge between $5,000 and $15,000 on average, depending on the intricacy of the code, although the price can be significantly higher in specific situations. As a result, the auditing firm produces a report that details the code's potential flaws and makes additional recommendations to improve its security. 

The specialists also look at contract dynamics to see how they represent modern security tendencies. But, why are smart contract audits so expensive? A smart contract auditor checks the code row by row, which is a time-consuming and complex task; therefore, smart contract audit services are very expensive. 

Despite its cost, the smart contract auditing process is essential to fix code flaws, which could result in much greater costs and security vulnerabilities as was mentioned in the previous section. So, how long does a smart contract audit take? Depending on the project, the size of the smart contract, and the urgency, the smart contract audit process (first audit) can take anywhere from two to 14 days. 

The audit could take up to a month for large projects or protocols. The client receives recommendations for fixes to implement after the initial audit is completed, and the length of time it takes to correct errors is determined by the client. After that, a remediation check that generally takes one day is undertaken.

How to become a smart contract auditor?

Smart contract auditing mandates programming knowledge since it involves checking code line by line. If you have no prior programming skills, be aware that it will take years for your code critiques to be meaningful.

You need to understand the basics of 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. Another optimal way to learn any blockchain or programming language is by using it in practice. 

It is important to note that blockchains use different programming languages. To familiarize yourself, please read our guide: A beginner's guide to the popular blockchains used in NFT development.

Having a financial background is an additional benefit when you are auditing decentralized finance (DeFi) projects. Most of the DeFi projects use standard finance terms; therefore, the auditor must understand basic financial terms like crypto derivatives to audit a smart contract effectively.

Smart contract auditing firms

Let's look at some of the smart contract auditing organizations that are securing the crypto ecosystem now that we realize the importance of the smart contract auditing process. 

Smart contract security audits were pioneered by CertiK (a web and blockchain security organization). BNB Smart Chain, Bancor and Huobi have all been audited by CertiK. Furthermore, before investing in any project, the Binance accelerator fund conducts CertiK smart contract audits.

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