By Jake Coleman
In the preceding year, the Web3 ecosystem experienced a significant surge in security breaches, resulting in a substantial loss of approximately US$4 billion. Most of these illicit activities targeted decentralized finance platforms, exacerbating the severity of the situation. The etiology of these occurrences is predominantly intertwined with software defects, vulnerabilities, or other complications about the foundational smart contracts governing these services.
Fortunately, developers are already equipped with the most formidable tool for preempting security breaches: the practice of smart contract auditing. The process of audits entails the engagement of external professionals who conduct a comprehensive examination of the code, meticulously scrutinizing its components to identify any inherent flaws in logic, potential vulnerabilities, and corresponding remedial measures.
Development teams must recognize the fundamental importance of their work. Equally significant is the need for regular investors to diligently assess and evaluate these teams. The utilization of this tool has the potential to significantly enhance the precision of investment determinations and safeguard individuals from allocating financial resources toward a substandard product.
Why Audits of Smart Contracts Are Essential Today
When code undergoes insufficient or inadequate auditing, it can potentially yield catastrophic outcomes. Consider, for instance, the scenario of the Terra-Luna collapse. Although the code underwent an audit, the auditors solely focused on identifying specific vulnerabilities within the smart contracts, neglecting to consider the broader context of the system’s functionality amidst diverse real-world economic circumstances.
For the widespread adoption of DeFi and Web3 to be realized by a significant global user base, we must acknowledge and confront a prominent issue that has been largely overlooked. How can services of such magnitude, responsible for processing vast sums of money, exhibit many critical problems? The case pertains to intelligent contracts, encompassing the code for delineating the interplay between diverse platforms and assets.
Due to the inherent immutability of blockchains, it is imperative that the code in question exhibits flawless functionality and operates precisely as intended. In the event of any inadequacy, there exists a distinct possibility that substantial value may be compromised.
The rationale behind implementing code audits before deploying Web3 projects in live environments is primarily driven by the need to ensure optimal performance and mitigate potential risks.
The audits encompass the engagement of technical experts to conduct a comprehensive review of all smart contracts to identify any potential issues about their logical structure, interdependencies, and potential vulnerabilities that may manifest. Internal audits are a viable option; however, it is widely acknowledged as a best practice to engage the services of an independent third party to conduct audits, thereby ensuring an objective and comprehensive evaluation.
The process of conducting audits traditionally involves manual procedures. However, it is imperative to recognize the potential for improvement by incorporating advanced tools, technology, and automation. To optimize efficacy, it is generally recommended to employ the services of qualified human experts to conduct the final review.
The auditors initially focused on the overarching code infrastructure to comprehensively understand the project’s objectives. The subsequent stages involve a comprehensive evaluation and rigorous examination of distinct code segments, followed by thorough testing across diverse scenarios.
The findings obtained from the research are systematically compiled and subjected to a final review. Subsequently, they are submitted to the development team for further analysis and disseminated online for public access.
Audit reports play a crucial role in safeguarding developers against the deployment of faulty services. However, both regular users and investors must peruse these materials as well. The provision of critical insight encompasses an evaluation of the inherent risks associated with utilizing a given platform or asset, in addition to assessing the team’s level of diligence and transparency in addressing said risks.
The significance of this information becomes evident when substantial financial stakes are involved, as it can determine the outcome between selecting reliable services and experiencing complete loss. Moreover, the absence of a comprehensive quality audit is a significant cause for concern, as reputable endeavors prioritize transparency in their security measures.
How to Interpret an Audit of a Smart Contract
Now, it is imperative to elucidate the anticipated observations that one is likely to encounter upon scrutinizing the outcomes of an audit. Various audits may exhibit slight presentation variations but should encompass fundamentally similar constituents. To commence, it is imperative to include a comprehensive overview containing diverse details about the project under scrutiny.
Including the smart contract address, details regarding the compiler version employed, the underlying blockchain platform, and pertinent external assumptions, such as privileged roles and integrations crucial for maintaining security, are imperative. This information can benefit individuals with limited familiarity with the project, whereas others may already have a comprehensive understanding of the abovementioned details.
Furthermore, verifying the version of the code that underwent the auditing process is imperative. Future modifications to the codebase may conceivably transpire without undergoing subsequent scrutiny.
It is of utmost importance to acknowledge that any alterations implemented after the audit can potentially introduce software defects. Therefore, adhering to stringent version control practices and conducting thorough audits of all modifications is crucial.
Subsequently, the forthcoming phase shall encompass the substantive essence of the audit, namely the comprehensive assessment of all the team’s discernments. It is imperative to compile an exhaustive inventory containing all identified bugs or concerns, accompanied by meticulously crafted descriptions elucidating the intricacies of each issue. Furthermore, a comprehensive set of recommendations for rectifying said issues should be included.
The identification and classification of issues typically involves the categorization of their severity, commonly delineated as minor, moderate, and critical. Typically, problems of a lesser magnitude do not pose a significant threat to financial resources; nevertheless, it is advisable to attend to them promptly. The presence of critical issues indicates the existence of an impending peril to valuable assets, necessitating prompt and decisive remedial action.
The bugs identified can also be categorized based on their susceptibility to exploitation. The rationale behind this is rooted in the fact that specific exploits possess the potential to cause significant harm, yet their execution requires a considerable level of proficiency and effort. While some tasks may present minimal challenges, they do not inherently result in any significant disruptions or damages. The provision of multiple parameters for evaluating threats enables developers to obtain a comprehensive understanding of the prioritization of issues to be addressed.
While acknowledging the potential technical complexity of the bug descriptions, it is imperative to provide a concise summary in plain English, highlighting the most significant discoveries and offering an overview of the project’s overall status. While the comprehensive analysis primarily caters to the development team, this particular segment is designed to be comprehensible for the majority of users. It aims to provide sufficient information to facilitate informed decision-making regarding the reliability of a given service.
What Most Audits Discover Most of the Time
Technical malfunctions or vulnerabilities within a platform or asset governed by smart contracts are not uncommon. Exposures exhibit a wide range of variations and inherent complexities; nevertheless, certain ubiquitous factors can be identified as contributing factors. The cautious utilization of smart contracts, which facilitate token minting or burning by the owner, is imperative.
In the event of an incorrect implementation of this function, there is a significant potential for an attacker to exploit it to generate or annihilate a substantial number of assets. Fortunately, earlier this year, the vulnerability above was successfully identified on Binance’s BNB chain, preempting any potential exploitation by malicious actors.
There may exist imperfections in the process by which transactions are authenticated. The Nomad Bridge experienced a well-known vulnerability resulting from a routine upgrade, which inadvertently enabled unauthorized individuals to rebroadcast previous transactions while substituting their addresses. The incident resulted in a substantial financial setback of more than US$150 million for Nomad. It is important to note that this loss was not attributable to a solitary assailant but rather to many users, owing to the exploit’s remarkably straightforward reproducibility.
The instances above underscore the significance of security audits concerning innovative contract platforms and blockchain protocols. The safeguarding of both developers and users is ensured through the execution of these activities, provided reputable third-party entities carry them out.
The industry’s strategic approach aims to mitigate the perpetuation of the prevailing trend witnessed in preceding years, thereby fostering a more favorable perception of cryptocurrency within the public domain, both in the remainder of 2023 and subsequent periods.
