Exploring cryptography: what is an audit of smart contracts

In the world of cryptocurrencies, the importance of security cannot be overestimated. Especially as the products offered become more and more complex. One of the measures that has become a security standard is smart contract auditing..

Smart contracts

A smart contract is usually understood as a self-executing computer program that runs automatically when predetermined conditions are met and is stored on the blockchain.. Today, smart contract technology underpins DeFi and Web3. It allows you to develop decentralized applications (dApps) that run on blockchains.

A smart contract is somewhat different from ordinary computer programs, since it is executed on a blockchain virtual machine and after it has performed some actions on it, the latter are reflected directly in the distributed registry and their result can no longer be rolled back.

In addition, the execution of a smart contract is more complex than the execution of a regular program, since it occurs on the blockchain and not on a separate device.. In order for actions initiated by a smart contract to take place, the assistance of network participants is necessary, who validate the work performed by the smart contract. Also its execution must be recorded as a transaction. Of course, you need to pay a commission to do this, so deploying smart contracts is not free.

What is smart contract auditing?

From the above it is clear that coding and execution of smart contracts is an extremely important component. The cost of an error here, as a rule, is much higher than in conventional computer programs. To minimize the risks associated with the deployment of smart contracts, they resort to auditing.

Smart contract audit is a detailed analysis of smart contract code to eliminate bugs, proactively identify security vulnerabilities, minimize risks and exploits, and optimize code efficiency. Simply put, smart contract auditing is code analysis.

Why do you need an audit of smart contracts?

The most obvious thing is, of course, to ensure safety. A timely discovered and patched security hole can save huge amounts of money that would have to be lost if attackers managed to take advantage of the vulnerability.

An audit is also needed in order to proactively find errors that distort the internal logic of the smart contract.. That is, to avoid situations where the coder intended one thing, but the smart contract does something else.

Don't forget about code efficiency. If the code of a regular program is poorly optimized, then this most likely will not affect anything other than its performance. Yes, the computer will need to perform more actions and spend more computing resources than necessary to complete the task. But the price of ineffective smart contract code is much higher, since for every extra action in the blockchain you will have to pay a commission. Therefore, unnecessary lines of code could hypothetically turn a smart contract into a loss generator.

There are also other reasons for auditing smart contracts that are not directly related to the code — for example, the audit increases the trust of users and investors. Thus, it is also necessary to increase the investment attractiveness of a particular project.

How does an audit take place?

When auditing smart contracts, a wide range of different tools and techniques are used. There is no standard nature in this process, however, the following are the stages that are most often used to audit smart contracts:

Collection of documentation

Documentation may include various elements such as the project's code base, architecture, White Paper and related materials. This is necessary so that auditors understand the task, logic and context of the project.

Automated Testing

It analyzes all possible states of a smart contract and identifies problems that could compromise its security or functionality. At this stage, auditors can also conduct integration, unit and penetration tests. Moreover, today AI can provide assistance in auditing smart contracts — it is gradually mastering the process of finding errors and vulnerabilities.

Manual code review

At this stage, a team of programmers examines the code line by line for errors, vulnerabilities and other problems. Yes, automated testing is good at identifying errors, but human participation is still required to detect architectural or logical flaws in a smart contract. Manual code review also makes it possible to optimize the program and reduce commission costs.

Error classification

Classification of errors in contracts involves ranking all errors and vulnerabilities by severity. Based on this classification, a report is compiled where auditors suggest the best ways to solve problems in the code. Each error is classified depending on the severity of the exploit caused:

Critical error — affects the security of the entire protocol.

A serious error is an error in the logical structure (sometimes centralization elements) that can lead to the loss of user funds or control over the protocol.

Average error — affects the overall performance or reliability of the platform.

A minor bug is not the most efficient code that does not compromise the security of the project.

Information error — related to the form/presentation of information, established industry practices.

Important common errors that can be identified as a result of a smart contract audit include: spelling errors, lack of ability to distinguish between people and contracts, random number vulnerability, timestamp dependency, and so on.

Price issue

It is clear that auditing smart contracts requires a team of experienced programmers armed with code review tools. Their time is worth a lot of money. According to the Fintechnews resource, the cost of an audit varies from $5,000 to $15,000 depending on the complexity of the task. In some particularly complex cases, the cost of an audit may be even higher. The cost of developing smart contracts varies on average from $7,000 to $45,000, depending on the complexity. In some cases, the price can reach $100,000.

Conclusion

Auditing smart contracts is a complex, expensive and responsible task. On the other hand, deploying smart contracts on a blockchain is a complex process that requires serious investments, both monetary and intellectual. Therefore, the audit of smart contracts has become an integral stage in the launch of any projects involving smart contracts. It allows you to identify errors at an early stage, improve the logic of program execution and increase the investment attractiveness of the project.