One of the hottest trends in the blockchain universe is the application of decentralized finance (DeFi) solutions. Today we will impartially review for our readers the Silicon Finance project, a new DeFi initiative aiming to solve a series of industry issues. The project’s team aims to achieve an increase in the safety of DeFi, with obvious benefits for the whole blockchain community. Furthermore, the initiative will look into a way to introduce more democracy and equality on Initial Dex Offerings…
Blockchain technology is one of the groundbreaking inventions of our time. Its open-source and highly secure features have allowed an explosion of DeFi applications and crypto projects. However, while blockchain is almost impenetrable, its applications are not.
Most blockchain-based protocols function on intelligent contracts, prone to vulnerabilities and code errors. It only takes one hacker attack to destroy several months’ worth of development and the project’s reputation forever.
Fortunately, any project can prevent this catastrophe with an external smart contract audit. This article looks closer at the importance of conducting an audit for your protocol’s smart contract.
What is a Smart Contract Audit?
A smart contract is the engine of a blockchain-based protocol. For the application to run smoothly, this contract has to be error-free. A smart contract audit performs an in-depth analysis of the contract’s code. This way, it helps developers identify potential vulnerabilities or bugs before deploying a smart contract.
Generally, projects should rely on third-party auditors, who can audit the developers’ work exhaustively and impartially. The good news is that new projects can depend on professional, smart contract auditing services to complete this task.
Smart contract audit prices differ depending on the project or service you choose. However, its benefits outweigh the risk of deploying a faulty smart contract on the blockchain.
Why Smart Contract Audits are Important
Writing a smart contract on the blockchain without auditing it is highly treacherous. Firstly, once you deploy it, you cannot alter the code. And, if the code has errors, its data is vulnerable to hacker attacks. This means that your application is prone to a high risk of data theft.
Nowadays, cracking smart contracts is expected in the cryptosphere. Hackers are constantly on the lookout for technical code issues and human errors. Once they find and exploit one, they can get away with millions of dollars worth of cryptocurrencies and data.
Famous Smart Contract Hacks
An example of the importance of smart contracts is the theft of $3 million from DeFi Protocol Cover in 2022. Then, a hacker noticed that the protocol had an infinite mining vulnerability. So, he invested a substantial sum before withdrawing his investment and the profits. He repeated these steps several times to accrue gains that the protocol could not sustain.
Fortunately, the Cover attacker proved to be a White Hat hacker, who returned the funds. In the end, he intended to show the project’s developers that their smart contract was faulty. However, not all attacks have such a heartwarming ending. Other famous and less fortunate cases include:
- dForce losing almost $25 million in April 2020
- KuCoin Exchange losing $280 million in September 2020
- Harvest Finance lost nearly $20 million in October 2020
- Pickle Finance losing $19 million in November 2020
The list goes on and can expand to include almost every project deploying an unaudited smart contract.
In blockchain history, 2020 will remain one of the years with most hacker attacks on smart contracts. That’s because these events prompted the surfacing of several expert smart contract auditors. And, as practice proves, an increase in auditing services and use has decreased the efficiency of these attacks.
Today, they are opting for a smart contract audit before deployment is a must. However, this process should go through the lens of a third-party auditor. That’s because the project developers may find it challenging to consider solutions to their code vulnerabilities. Additionally, an external audit increases the users’ trust more than an internal audit.
How a Smart Contract Audit Works
The hacking risk is a good enough motivation for every project to opt for external smart contract auditing. However, security is not the only reason for it. Developers also have to consider how advantageous it is for users to use their applications.
Creating and deploying a smart contract for developer beginners may seem easy at first. However, one of the primary challenges they soon face is gas optimization. This refers to the fee that users have to pay to use a smart contract. For instance, if the contract is poorly optimized, users will have to pay substantial sums, which outweigh potential gains. As a result, they could abandon the project altogether.
Auditing is a complex process, but it can help solve and prevent these issues. Here’s how it works!
Step 1 – The Project Developers and the Auditors Agree on a Scope of Work
The audited party provides the auditor with all the necessary information about the project and its smart contract code.
Step 2 – The Auditor Collects Code Design Models
The auditor inspects the code and reviews the architecture to ensure optimal integration of third-party smart contracts.
Step 3 – In-Depth Testing
The auditor tests each function of the smart contract. The experts test all the possible use cases and known exploits that can attack the agreement in this process.
Step 4 – Manual Analysis
The auditors inspect the smart contract extensively and code line by line. This way, they detect any potential risks and vulnerabilities.
Step 5 – Initial Report
The auditors produce an initial report of their findings and suggest all vulnerabilities.
Step 6 – Fixing Errors
The auditors suggest solutions for each bug or error they presented in the initial report.
Step 7 – Final Audit Report
After fixing all potential vulnerabilities, the auditors confirm the reliability of the smart contract. Additionally, they emit a successful smart contract audit certificate. This document serves the project to prove its dependability and trustworthiness to users and investors.
It’s worth noting that this is the general process of a smart contract audit. However, standards and procedures may differ depending on the auditor or tool you choose to use. Also, this sector is still under development. Therefore, it may change depending on technological advances and market requirements.
Nevertheless, a smart contract audit is vital for every new project seeking to launch successfully on the blockchain. This practice can significantly reduce the risk of a faulty or ineffective protocol. If you are looking for expert smart contract audits, you can rely on top auditors, such as Chainsulting, Solidproof, CertiK, or OpenZeppelin.