What Is A Smart Contract Security Audit? A Complete Guide

This post is written by Harshit Yadav, Graduate from IIT-Roorkee and Technical Content writer at QuillAudits. Edited by Arun Shakyawar.

Smart contracts are fuel for the current Web3 world. We cannot imagine today’s Web3 ecosystem without smart contracts. They provide immense power, flexibility and ability to drive new innovations and creation in the Web3 world. Every protocol, every advanced decentralized Web3 structure has its foundation in smart contracts.

Along with the power the smart contacts provide, it becomes of utmost importance that we use this power responsibly. The very fuel that lights the Web3 world can also burn it if not taken care of this. Here we are exploring smart contract security. Let’s start with the question of why web3 security is important in the first place. Then we will move on to a quick and basic introduction to smart contract security.

What is smart contract security?

In simple terms, smart contract security refers to incorporating best-followed security principles and practices while developing or coding smart contracts. These practices range from fixing typos to finding and fixing complex logical application designs.

The fun and haunting part of smart contract security are that you must always be on your toes and ready for a security breach. One can never be completely sure that his smart contracts are safe unless it’s the auditors like QuillAudits who always keep up to date with the latest threats and attack vectors.

To create safe and secure smart contracts, developers need to be equipped with the latest knowledge, practices and tools in order to create secure smart contracts which are free from vulnerabilities. Speaking of vulnerabilities, let’s talk about what those exactly are.

What are smart contract vulnerabilities?

Smart contract vulnerabilities are flaws or a weakness found in the source code or design style of the smart contracts of our protocols or projects. These vulnerabilities are often the root cause of protocols getting hacked. These vulnerabilities cost inflict huge damage to the protocols because if any vulnerability is found and exploited by a hacker, there is no turning back and many times, the protocols are completely shut down.

Since Web3 has been experimented upon for quite some time, the developers came across many vulnerabilities and attack vectors which have been used to hack protocols. Let’s discuss a few of them.

1. Basic Renterancy attack: A common vulnerability which involves an attacker repeatedly calling a function within a smart contract before the last execution has been completed. This leads to unexpected or malicious behaviour.
2. Integer Overflows/Underflows: Integer calculation is necessary for many smart contracts. If these calculations are not properly checked, our contract may result in unexpected behaviour, which can be exploited.
3. Unchecked return values: A call to an external may send unexpected return values which our contract may not be ready to handle, which may lead to a vulnerability and can cause harm.
4. Unprotected functions: A contract may lead to unauthorised access to sensitive functions due to improper access control. Which can lead to heavy loss.

Biggest Security Risks for Web3

When we compare Web 2.0 with Web 3.0, Web3 wins the battle. With new technology, we sure are moving towards a safer world, but every technology introduces its share of security risks. Out of those risks, some are related to the interaction layer of Web2 and Web3 others are related to the functionality of protocols on the blockchain. In addition, if we want to make edits or patches in the flaws, it might take a lot of time as it is a slow process. In this blog section, we will explore some of the biggest risks Web3 faces today. Let’s start one by one.

1. Lack of encryption and verification for API queries

Web3 has decentralisation at its core, but its platform provider is still web2. The applications over Web 3.0 use Web 2.0 technologies to facilitate its front end. Most protocols use API queries to the Web3 back-end for blockchain interaction, and this link can sometimes cause trouble.

This link opens up the Web3.0 applications to on-path attacks, data interception and other Web2.0 attacks, and all this is because Web3 API queries are not signed cryptographically.

2. Smart contracts hacking

Like every technology smart contracts have their ups and downs, there are mostly ups but some downs as well, you see smart contracts are the very heart of Web3.0 but sometimes the smart contracts can also be hacked and as evident from the report crypto space in total saw a loss of $3.8 billion in 2022 many were because of falling victim to smart contract hacking.

3. Wallet Theft

The Web3 space witnessed one of the greatest losses in NFTs in 2022. According to a report, out of 166 total NFTs thefts, 14 happened in 2021, 2 in 2020, and the remaining 150 took place in 2022. A lot of these NFT hacks had to do with something called ice phishing. Find out more about that here. This hack involves getting unauthorised access to the user’s wallet. Once the wallet is hacked, the user is under a huge threat.

4. Protocol and Bridge attacks

2022 was a year of bridge attacks. We witnessed the most bridge attacks last year. The most notable were Qubit with an $80 million loss, Wormhole with a $237 million loss, Ronin with a $624 million loss, Harmony with a $97 million loss and Nomad with a $190 million loss. To find out more about the bridge hacks, head here. Bridges are supposed to ease and better users’ experience, but what if there are no users?

What makes smart contracts secure?

The security journey of a smart contract should start with the first line of the code. Making smart contracts secure is a continuous process which involves security-oriented development from the start and throughout. The fact that smart contracts are immutable gives them the power but simultaneously creates security more difficult.

Smart contract codes must be written so that in case of any breach, it can be paused, and there should be a well-planned update and upgrade path for new bug fixes and development. The ability to include these features in the smart contracts defines how expert and experienced a developer is. A good developer must always consider security-related details when working on a smart contract and optimising the gas fee.

Smart contracts are self-executing and do not require human intervention once deployed. This eliminates the need for intermediaries, reducing the risk of human error and increasing security.

The latest tools aid a lot when we are focused on security-oriented development. These tools help create better smart contracts, and other debugging tools help debug and test smart contracts well. A core part of smart contract development is testing which becomes easier when we have tools to help us.

Importance of Smart Contract Security Audit

Smart contracts have become an integral part of the Web3 world and are the foundation of every advanced decentralized structure. While they provide immense power and flexibility, it is of utmost importance to use this power responsibly.

Smart contract security is vital to ensure the safety and integrity of protocols and projects built on the blockchain. Smart contract vulnerabilities can lead to huge losses and even shut down entire protocols. Therefore, developers must equip themselves with the latest knowledge, practices and tools to create secure smart contracts.

Smart Contract Auditing Firms

Smart contract security is a highly complex and challenging task that requires a great deal of expertise and experience to create safe and secure smart contracts. Despite the best efforts of developers, there is always a risk that smart contracts may contain vulnerabilities or bugs that could be exploited by attackers.

To mitigate this risk, smart contract auditors play a critical role in ensuring the security of smart contracts. These experts have specialized knowledge in identifying and addressing potential security flaws in smart contracts, and they can provide valuable insights into the design and implementation of these contracts.

By conducting thorough audits of smart contracts, auditors can help to identify potential security risks and recommend appropriate measures to address them. This can include everything from code review and testing to the implementation of additional security features and protocols.

Ultimately, the role of smart contract auditors is to provide an added layer of security and protection for smart contract developers and users alike. While it may be challenging to create completely bug-free smart contracts, the expertise of auditors can go a long way in minimizing the risks and ensuring the safety and security of these contracts.

QuillAudits

QuillAudits is one of the top players in the smart contract audit industry. Their expert team has audited some of the leading projects and continues to expand. Visit the website to know more about their smart contract security solutions.

Author Bio
Harshit Yadav, Graduate from IIT-Roorkee and Technical Content writer at QuillAudits. A strong fascination for crypto & blockchain technology, combined with my interest towards writing, got me into the role of Technical Content Writer at QuillAudits. Enthusiastic about Blockchain, DeFI, Machine Learning and Artificial Intelligence, loves to learn, implement and share knowledge.

https://medium.com/@harshit_yadav
https://www.linkedin.com/in/harshit-yadav-89b103192/

QuillAudits
https://www.quillaudits.com/smart-contract-audit

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