Why You Should Conduct Smart Contract Security Audit for Your Business

Smart contracts are generating a lot of buzz in the business world since they are seen as an innovative way to cut costs and increase efficiencies. While smart contracts have many benefits, they also come with some risks that we need to be mindful of. This blog post will discuss the smart contract security audit so you can ensure your smart contract is safe.

What is a Smart Contract?

Basically, smart contracts are blockchain-based digital versions of traditional legal contracts that you would sign with a private company or individual. The smart contract defines rules and consequences in the same way a traditional paper-based contract does. However, it also automatically enforce those obligations.

What is a Smart Contract Security Audit?

A smart contract security audit is an examination of your smart contracts. It ensures that they are free from vulnerabilities and meet regulatory standards. It’s a way for you to improve the quality, safety, and reliability of smart contracts in order to reduce operational risks.

Why Should You Conduct A Smart Contract Security Audit?

Hackers could potentially exploit smart contracts to steal money or cause other problems. A smart contract security audit will help you identify vulnerabilities and make your smart contract more secure.

With increased interest in blockchain technology, smart contract security audits will also become increasingly important to ensure all organizations remain secure.

Before we discuss some smart contract vulnerabilities, let’s look at the benefits of conducting a smart contract security audit:

• Potential blockchain security issues are identified before they occur
• Bugs in the smart contracts are fixed before smart contracts go live
• Smart contracts can be tested for loopholes and backdoors
• A smart contract security audit will help you comply with regulations
• Improved trust between the two parties involved in smart contract transactions.

Smart Contract Vulnerabilities

There are some vulnerabilities that smart contracts are susceptible to:

1) Reentrancy Attack

Smart contract reentrancy attack is a type of smart contract vulnerabilities, where hackers exploit the function called “call” to take control over smart contracts. In a smart contract reentrancy attack, a function is called repeatedly in the smart contracts. This can be used to steal smart contract assets or even crash smart contracts with certain bugs.

For example, smart contracts contain a function called “withdraw” that allows smart contract managers to withdraw a certain amount of money from the smart contracts. Hackers could exploit this function by calling it repeatedly, continually withdrawing smart contract assets.

This type of smart contract vulnerability is hard to detect without a smart contract security audit because the hackers are smart about not triggering alarms that smart contract managers have placed in smart contracts.

2) Smart Contract Backdoors

Smart contracts can potentially have backdoors which are crucial bugs in smart contracts that can be exploited by hackers.

In August 2016, a hacker found an exploit that allowed him to steal $32 million from the smart contract called “The DAO”.

3) Race Conditions

Smart contracts are susceptible to race conditions which allow attackers to take advantage of smart contracts. For example, if two smart contracts share the same smart contract being executed simultaneously, it could lead to a situation where one smart contract overwrites another smart contract.

4) Replay attack

Replay attacks are a type of smart contract vulnerability that allows attackers to steal money from other smart contracts with similar code. If a smart contract is not designed to prevent replaying, hackers can send requests multiple times and withdraw more money than they put in.

In September 2016, the smart contract of the DAO called “The DarkDAO” was exploited and $50 million were stolen.

5) Timejacking

Smart contracts are susceptible to time jacking which allows attackers to take advantage of smart contracts by changing their own execution timestamp. In this way, hackers can cause smart contracts to behave differently from what was originally intended.

In September 2016, a hacker exploited this vulnerability and stole $150 million worth of Ethereum.

6) Transaction-Ordering Dependence

Smart contract transactions are executed in the sequence specified by their instructions. For example, if smart contracts A and B share the same smart contract C which specifies that smart contracts A and B should be executed in the sequence of smart contract C, then smart contract execution fails if smart contract B is executed before smart contracts A.

7) Denial-of-Service

Smart contracts are susceptible to denial-of-service attacks which can be used to make smart contracts fail by sending numerous requests. In this way, smart contract transactions cannot be executed. In September 2016, a hacker exploited smart contracts vulnerabilities and stole $80 million from the smart contract

Final Thoughts

So make sure to conduct regular smart contract security audits. If you’re not already conducting these audits, it might be time to sit down with your team and set up a schedule for them. There are many things that can go wrong when developing contracts on the blockchain, but if you want to mitigate those risks as much as possible then cybersecurity should be at the top of your list!