Carefully! Lots of text.

A security audit provides a detailed analysis of a project's smart contracts to protect your investment. Since all transactions on the blockchain are final, it is impossible to recover funds in the event of theft. Auditors study the smart contract code, compile a report and provide it to the project team. A final report is then issued detailing any remaining bugs and the work done to resolve performance and security issues.


Introduction

Smart contract security auditing is widespread in the decentralized finance (DeFi) ecosystem. The decision to invest in a blockchain project may be based in part on the results of a smart contract code review.

Although many users understand the importance of auditing, most of them are not ready to delve into the code structure. Let's look at the methods, tools and results of smart contract security audits that are important for making effective investment decisions.


What is smart contract auditing?

A security audit allows you to examine the project’s smart contract code. Contracts are typically written in the Solidity programming language and made available via GitHub. Security audits are especially important for DeFi projects with millions of dollars in transactions or a huge number of participants. An audit usually includes four stages:

1. The audit team conducts an initial analysis of smart contracts.

2. The results of the analysis are provided to the project for action.

3. The project team makes changes based on the problems found.

4. The audit team issues a final report taking into account new changes and remaining errors.

Many users consider smart contract auditing when investing in new DeFi projects. Audit is a standard procedure for large-scale projects. At the same time, reports compiled by leading auditing companies are considered more valuable in the eyes of investors.


Why do you need an audit of smart contracts?

Since smart contracts are used to transfer or lock significant funds, they can be subject to hacker attacks. Minor errors in the code can lead to the loss of huge sums. For example, the DAO hack on the Ethereum blockchain led to the theft of $60 million in ETH and a hard fork of the network.

Since blockchain transactions are irreversible, it is very important to ensure the security of the project code. The peculiarities of blockchain technology make it difficult to return funds and solve problems after the fact, so it is better to identify potential project vulnerabilities in advance.


How smart contract auditing works

Smart contract audit is a fairly common service. Although audit firms' approaches may vary slightly, a typical audit looks like this:

1. Determining the scope of the audit. The specifications of a smart contract are determined by the purpose of the project and the overall architecture. The specification helps the audit team understand the project's goals when writing and using code.

2. Setting an initial price depending on the volume of work.

3. Check. The tools and methods of review vary by audit team. Automatic and manual verification are usually used.

4. Creating a draft report with detected errors and submitting it to the project team to correct them.

5. Publication of the final report, taking into account all the actions taken by the team to solve the problems encountered.


Ways to audit smart contracts

Gas efficiency

The audit of smart contracts is aimed not only at checking the security of the blockchain, but also at its efficiency and optimization. Some contracts produce complex series of transactions to perform their function. Since gas fees are high on networks like Ethereum, efficient contracts can significantly reduce transaction fees.

Optimizing the performance of smart contracts is an indicator of the skill of the developer. Ineffective steps during the development stage lead to errors and should be avoided. Smart contracts can be disrupted due to high gas costs, especially when the limit is low.

Smart contract vulnerabilities

Much of the audit involves checking contracts for security vulnerabilities. Although some problems lie on the surface, many errors can only be eliminated with the help of sophisticated tools and strategies. For example, a weak smart contract combined with market manipulation could be susceptible to a flash loan attack. To detect these problems, auditors try to break into the contract and simulate hacker attacks. Common vulnerabilities include:

1. Recursive call: The smart contract makes a call to another external contract before the changes have been committed. The external contract may then recursively interact with the original smart contract in an invalid way because its balance has not yet been updated.

2. Integer overflow: The smart contract performs an arithmetic operation, but the value exceeds the storage capacity (typically 18 decimal places). This may result in incorrect amounts being calculated.

3. Anticipation: Poorly structured code contains data about future transactions that can be used by third parties to their advantage.

Platform security bugs

Most audits involve examining the network with the smart contracts hosted on it and the APIs used to interact with the DApp. If a project is vulnerable to a DDoS attack or has a compromised interface, then users risk connecting their wallets to malicious blockchain applications.


What is an audit report

The report is provided at the end of the audit. The project team is expected to post their findings to the community. Most reports categorize problems by severity: critical, major, minor, and so on. The report also indicates the status of the issue by giving the project team time to resolve the issue before publishing the final report.

In addition to general conclusions, the report usually contains recommendations, examples of redundant code, and a full analysis of coding errors. The project team is given time to correct errors before the final report is released.


How can you get an audit of a smart contract?

Some auditing companies have become widely known for their services. Contacting them will require an initial proposal and communication of information.

CertiK

CertiK is a leader in the field of auditing, with hundreds of audited smart contracts under its belt. These include PancakeSwap, the largest automated market maker (AMM) on the BSC network. Below is an excerpt from the Certik audit for PancakeSwap.


Most projects supported by Binance Labs have also been audited by CertiK. The company maintains a rating of verified projects, giving each a safety rating. In addition to Ethereum, CertiK also audits BSC and Polygon projects.


ConsenSys Diligence

ConsenSys is one of the largest blockchain software companies founded by Ethereum co-founder Joseph Lubin. As part of ConsenSys Diligence, the company offers audit services for Ethereum smart contracts. It also provides an automated service that checks Ethereum Virtual Machine (EVM) contracts for common errors.


How much does a smart contract audit cost?

The exact cost of the audit depends on the number of smart contracts being audited. Typically, an audit costs several thousand dollars. An audit on a large project can cost more than $10,000. The price of the service is also affected by the audit company and its reputation.


Summary

Fortunately for investors and users, smart contract auditing has become the gold standard. On the other hand, when most projects are audited, it becomes increasingly difficult to judge their value, so it is very important to read the audit company's report yourself. Even if you don't have technical knowledge, you can read the comments and the severity of potential problems.

Now, when you come across an audit report, it will be easier for you to understand its contents. Remember, before making investment decisions, you need to look at the big picture and learn as much information about the project as possible.