A smart contract is a self-executing program that automates transactions between two parties. It follows the “if X is available, then Y is done”. So, when you present it with the necessary conditions, it automatically does what it should. But, once you deploy it on the blockchain, you can no longer modify it. What’s in it is there forever no matter the consequences hence why a smart contract security audit is necessary.
What Is A Smart Contract Audit?
A smart contract audit refers to conducting a thorough analysis of a contract’s code to check for errors and vulnerabilities. It primarily checks for known vulnerabilities in smart contracts and conformance with the Solidity code style guide.
Smart contracts are the base core of transactions, NFT collections, and dApps. And, given that the smart contract is immutable once it’s on the blockchain, this process is crucial to avoid drastic consequences. Flaws in smart contracts can lead to huge losses.
In 2022, $1.25 BILLION was lost because of 33 smart contract exploits. The DAO breach on the Ethereum blockchain seized around $60 million in Ether and resulted in a hard fork of the Ethereum network. And recently, an exploit of Hedera’s smart contract led to the theft of liquidity pool tokens.
The importance of auditing these contracts is primarily linked to preventing such awful attacks and irreversible errors. No one wants to lose this much money. But also these contracts’ inspection enables creators to get an expert review of the code.
Contract creators would get a detailed analytical report containing an executive summary with vulnerability details and advice. So, they would know if there’s room for possible improvements in their code.
There are two types of smart contract audits: manual and automated.
Manual Smart Contract Audit
This type of auditing involves a group of experts going over the contract’s code line by line. These experts inspect the contract in two ways:
- Performing a check based on their experience
- Following a standard list of flaws
They are not only able to spot code errors but also design faults. So, this method is more accurate.
Automated Smart Contract Audit
This method involves using automated bug-detection software that helps auditors locate the exact location of the errors. Naturally, this software helps find vulnerabilities faster. The downside is that the software may not always understand the context and can miss design flaws.
How To Audit A Smart Contract?
The process of auditing a smart contract includes the following steps:
Step 1: Collect Data
The project that wants a smart contract audit must first freeze the code. Then, it should provide auditors with all necessary information:
- And any other related material
The project should also explain to auditors what the contract is set to achieve and how they plan to implement it.
Step 2: Perform an Automated Smart Contract Audit
As previously explained, an automated audit uses bug-detection software. It points out any issues that could harm the contract’s security or functionality.
Step 3: Perform a Manual Smart Contract Audit
After conducting an automated smart contract audit, a team of expert auditors performs a manual one. They go over every line of code checking for vulnerabilities and errors.
Step 4: Classify Contract Errors
After conducting both audits, auditors should classify the errors based on their severity:
- High: Contract has severe legal and financial consequences
- Medium: Contract has a moderate financial impact but impacts individual users’ information. And can potentially have legal repercussions for clients.
- Low: Contract has a minor risk that the auditor hasn’t identified as critical.
- Informational: Contract doesn’t have any immediately risky errors but ones that are related to style or the industry’s best practices.
Step 5: Present Audit Report
Auditors summarize all code flaws and other issues as well as advice on how the project can fix them. They give the project team a detailed report about everything. This report is given to the project’s team. And, they often make it public and share it with the community for transparency purposes. Some audit service include experts that can help fix each bug.
Smart Contract Audit Companies
If you have your own project and are looking for someone to look over your smart contract, you can check:
You should always perform smart contract audits to avoid losing so much money on errors you could’ve easily avoided. If you can avoid mistakes, why wouldn’t you? Smart contracts are a great building basis for projects and applications. There are even 10 different types of NFT projects you can build, or invest in. Check them out here!