Smart contracts have become an integral part of the booming cryptocurrency market. At a base level, they are automatically executing contracts coded and stored on the blockchain that provides the basis for creating all manner of functions, including building decentralized applications (dApps), creating ERC-20 tokens, and minting non-fungible tokens (NFTs).
All smart contracts on Ethereum are open-source, meaning that their source code is publicly available and can be viewed and audited by anyone (though they sometimes need to be decompiled first). While this offers some levels of transparency, it also exposes vulnerabilities in the smart contract code, potentially enabling hackers and malicious users to compromise them.
Due to the increasing complexity of smart contracts, security issues and bugs are quite common, especially in cutting-edge applications. Therefore, it is crucial to conduct regular audits to identify and address any vulnerabilities. It is also important to understand the nuances of smart contract security and implement best practices to mitigate potential risks.
This article explains smart contract audits and how they contribute to enhancing smart contract security.
What Are Smart Contracts?
Smart contracts are self-executing contracts with the terms of the agreement directly written into lines of code. These contracts automatically execute predefined actions once certain conditions are met.
The code runs on distributed ledger technology, such as blockchain. This offers several benefits, including:
- Transparency;
- Eliminating the need for intermediaries;
- Reducing costs compared to traditional contract processes.
Each party doesn’t need to trust the other. All they need to do is verify that the code does what it’s supposed to do.
What Is a Smart Contract Security Audit?
A smart contract security audit is a comprehensive review process that assesses the security of the smart contract code and identifies potential vulnerabilities within it. These audits also often check for inefficiencies and simply incorrect code, even if they don’t pose direct security threats.
The audit is conducted by experienced security professionals who specialize in blockchain technology. Their main objective is to identify any potential security flaws or coding errors that may lead to potential breaches or exploits.
Why Smart Contract Security Audits Are Important
Smart contracts are not immune to security flaws. In fact, the nascent nature of the technology makes them particularly vulnerable. Furthermore, any coding errors or vulnerabilities can have severe consequences, such as financial losses or exposure to sensitive information.
It is important to note that if the security of a smart contract is breached and funds are stolen, recovering them can be extremely difficult due to the irreversible nature of blockchain transactions. This further emphasizes the significance of conducting a smart contract audit.
In essence, conducting a security audit provides assurance to the users that the deployed contracts have been thoroughly reviewed and are free from any exploitable vulnerabilities (assuming the auditor didn’t miss anything major). It helps prevent potential attacks and ensures the integrity of the smart contract ecosystem.
Other benefits of smart contract security audit include:
- Early audits in the development lifecycle can prevent costly errors post-deployment;
- Security auditors manually verify smart contract code, which helps avoid negative consequences;
- Audits provide assurance of asset security to all owners in decentralized applications;
- Comprehensive auditing produces analytical reports with vulnerability details and mitigation recommendations;
- Potential increases in efficiency and functionality if the auditor notices imperfect code.
7 Most Popular Forms of Smart Contract Attacks and How to Mitigate Them
One of the most important ways to avoid smart contract vulnerabilities is to know the most common problems and how to prevent them.
There are a number of security vulnerabilities that are more commonly found in smart contracts. Here are the seven most popular forms of smart contract attacks and some effective strategies to mitigate them:
Reentrancy Attacks
Reentrancy attack vectors exist due to the imperative execution of Solidity smart contracts. When a contract makes an external call to another contract, the calling contract’s execution is paused until the call returns.
This opens up the possibility of an infinite loop, allowing a malicious contract to withdraw resources without updating the balance. Multiple types of reentrancy attacks exist, including single-function, cross-function, cross-contract, and read-only reentrancy attacks.
To mitigate this vulnerability, developers must carefully design external calls and ensure the contract’s state is checked and updated appropriately. Adding a reentrancy guard can prevent multiple functions from executing simultaneously. Audit tools like Slither, Mythril, and Securify can help identify different types of reentrancy vulnerabilities.
Oracle Manipulation
Smart contracts rely on oracles to access and consume external data from off-chain systems. Manipulated or incorrect oracle data can trigger the execution of smart contracts erroneously, leading to potential exploitation.
Attackers sometimes distort oracle prices and then use complex smart contracts called flash loans to drastically increase their principal and thus the amount of money that they can steal.
To mitigate this issue, developers can use decentralized oracles like Chainlink or Tellor or even multiple oracles, which can provide accurate data and deter attackers from interfering with the data.
Gas Griefing
Gas griefing occurs when a user sends the required gas to execute a smart contract but not enough to execute subcalls. If the contract fails to check the availability of required gas for subcalls, it can significantly impact the application’s logic.
Unfortunately, there is no effective technique to prevent gas griefing entirely. Developers can code the contract to set the amount of gas to be sent, reducing the likelihood of this attack. However, a rise in gas costs may lead to transaction failures.
Transaction Order Dependence Attacks (Frontrunning)
Smart contracts become publicly visible as pending transactions, enabling miners to choose transactions with the highest gas fees. This creates an opportunity for attackers to front-run transactions by submitting an identical transaction but with a higher gas fee. These attacks are almost always usually performed by bots, supplemented with information from miners processing transactions.
For example, when a user tries to make a large swap on a decentralized exchange (DEX) but doesn’t set a slippage limit (the amount the trader is willing to lose to price impact), bots can swoop in and front-run the transaction. The bot would submit a massive buy transaction with a higher gas fee so that it is verified before the trader’s transaction, making the asset’s price increase significantly. Next, the trader’s transaction goes through at the inflated price. Finally, the bot sells all the tokens it bought at a profit, bringing the price right back down.
To try to prevent frontrunning attacks, developers can choose to accept transactions with a gas price below a predetermined threshold. Alternatively, a commit-and-reveal scheme can be implemented, where a user first submits a solution hash instead of the cleartext solution to avoid frontrunners’ interference.
Frontrunning is most easily prevented on the user side by setting low slippage. A simple warning pop-up explaining slippage before users make trades is often helpful in preventing frontrunning.
Force-Feeding Attacks
Developers cannot prevent smart contracts from receiving Ether (ETH), the native token of Ethereum. This makes force-feeding attacks possible, in which an attacker tries to manipulate a contract’s Ether balance to change the expected balance relied upon by the contract’s internal code.
To mitigate force-feeding attacks, developers should avoid using a contract’s balance as a check or guard within a function.
Timestamp Dependence
This vulnerability happens when the smart contract relies on the value of the block timestamp value to execute an operation. Due to the distributed nature of the Ethereum platform, timestamp values used within smart contracts might not always be synchronized across all nodes.
To avoid this vulnerability, developers should refrain from using ‘block.timestamp’ as a control or logic check or as a source of randomness.
Denial of Service (DoS) Attacks
Smart contracts are susceptible to denial of service (DoS) attacks, where an attacker overloads the system to block other contracts from executing or manipulating values for personal gain. This can disrupt auction results or financial transactions.
To deter DoS attacks, developers can simply make them costly for attackers. Implementing time-lock puzzles and increasing gas fees can increase an attacker’s costs and discourage them from executing DoS attacks.
The Bottom Line: Don’t Skimp Out on Smart Contract Audits
In the fast-paced world built on smart contracts and blockchain technology, ensuring the security of these self-executing contracts is paramount. A smart contract security audit plays a crucial role in safeguarding users’ assets and maintaining the integrity of the ecosystem.
By identifying vulnerabilities through rigorous code analysis and implementing best practices and mitigation techniques, developers can significantly reduce the risks associated with the deployment of smart contracts.
Ultimately, by prioritizing smart contract security, individuals and businesses can fully harness the potential of this transformative technology without compromising their security.
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