Unlocking the Benefits of Smart Contract Security Auditing

There's a famous saying that with a smart contract, the code is the law. Meaning there is no room for error. The contract can run only as the coding dictates. And once smart contracts have been deployed, developers can't fix them. They must create a new version and deploy that, which can be costly and time-consuming. Smart contract sercurity auditors can help to ensure that coding is safe and secure.

This article will take us through a detailed analysis of a smart contract security audit, including its importance and benefits, working mechanisms, types, costs, and much more.

What are Smart Contracts?

Before finding out how to audit a smart contract, let's have a brief understanding of smart contracts. Smart contracts are computerized transaction protocols tailored for executing the terms of a contract. Primarily, smart contracts are tailored to address common contractual conditions while reducing accidental exceptions and the involvement of intermediaries.

Presently, smart contracts serve a wide range of use cases, such as supply chain management, ICOs, and electoral voting. So, where is the problem? Just like any other software, smart contracts come with security vulnerabilities. Therefore, a smart contract audit is necessary to ensure that smart contracts are free of security issues. At the same time, the auditing also ensures that the smart contracts are optimized to provide ideal performance levels.

What is a Smart Contract Security Audit?

A smart contract security audit involves a detailed analysis of the contract's code to identify security issues and incorrect and inefficient coding and to determine ways to resolve the problems. The audit process is essential to ensuring blockchain applications' security and reliability. A smart contract audit analyzes the source code to see if it follows the predetermined conditions and behaves as the developer intends. Auditing a smart contract aims to discover possible errors and security vulnerabilities in the code and recommend improvements and ways to fix them.

Smart contract security audits are widespread in the Decentralized Finance (DeFi) space. At the same time, most people understand the importance of audits for cybersecurity, but only some care to dive into the lines of code. However, considering investing in a project, it is better to consider its smart contract code review and decision.

Therefore, smart contract security auditing involves bringing in many potential scenarios and running endless, exhaustive tests with many third-party applications to find any bugs. After the initial testing, the auditors produce a report for the contract-building team to review. The team can address any problems before the audit is over. This offers them the opportunity to add any revisions to the final report.

Types of Smart Contracts Security Audits

An audit can be categorized in two ways: External and Internal Audit

External auditing signifies outsourcing smart contract auditing to a third-party unrelated to the project development. External auditing adds a different dimensionality to your smart contract. The external audit team consists of a specialized team of security professionals providing an unbiased perspective on your project. Also, hiring an outsider is typically cost-effective rather than maintaining a team of security professionals.
Internal auditing implies an internal team of security professionals to test projects for vulnerabilities. Undoubtedly, this could be the first line of assessment for your project. Also, unlike an external audit, there is no need to pre-plan an audit which can be done periodically. Although, it can be costly to maintain a whole team of security experts.

Why are Smart Contract Security Audits Important?

After finding the answer to ‘what is a smart contract security audit?’ it is reasonable to look for its significance. Security is one of the formidable concerns for smart contract implementation in present times. The concerns of inefficiency, security issues, and misbehavior could lead to excessively high additional costs in implementing smart contracts on a blockchain network.

While blockchain technology is secure, blockchain applications have security vulnerabilities. One of the best-known security incidents involving smart contracts was a theft worth $50 million in 2016. Hackers exploited vulnerable code in a blockchain investment fund, the DAO, controlled through smart contracts. A smart contract security audit team can help to mitigate such risks.

Blockchain enterprises are often troubled concerning smart contract implementation. Considering its irreversible nature, an attack once made can’t be rolled back—furthermore, risk of losing the entire contract and its assets due to security vulnerabilities in smart contracts.

Below are a few benefits of a smart contract security audit:

A security audit identifies the major systemic flaws in your project and avoids costly errors. Auditing code early in the development lifecycle can prevent fatal flaws after launch.
Establishing trust with your investors and users is critical. An audit acts as a security stamp, adding a layer of security to your project.
Security audits are critical for developing risk assessment plans and mitigation strategies for organizations dealing with individuals’ sensitive and confidential data.
An audit will erect a hack-proof wall around your project, shielding it from potential threats.
Auditing not only detects code errors but also optimizes them for performance.

Process for Smart Contract Security Audit

A smart contract audit is a comprehensive process. A smart contract can consist of thousands or tens of thousands of lines of coding. Even obvious issues sometimes get lost in the sheer bulk. The testing tools and human auditors must discover errors and potential vulnerabilities in the coding as written and in what is missing. Let's break down the process of a smart contract security audit.

Documentation

The first step of an audit is to gather all relevant documentation. This includes the white paper, codebase, and any other material related to the smart contract. The auditor can gain a high-level understanding of the blockchain application by reading the design documentation.

Without access to documentation, the auditors will have no way of knowing what the smart contract is designed to do. Documentation, including a full specification for the project, is essential to the auditing process. For auditors to see the code working as intended, they must know what you want the code to achieve.

The developers and auditors must agree on a code freeze at this stage. No more code will be written, or the contract audit will not consider any code written after that point.

Unit Testing

Once the auditor understands the code and the application, they will run automated tests with various tools. At this stage, smart contract auditors use auditing tools and testnet, ensuring unit testing covers the maximum risk involved. This is by far the easiest way to detect potential issues. The auditors will take various steps, including integration tests exploring large amounts of code, unit tests looking at individual functions, and penetration testing to probe for security vulnerabilities.

Line coverage is an excellent measure of how well the tests cover the code. High line coverage indicates that the tests are doing an excellent job of exploring all of the lines of code in the application. After the automated tests are complete, the auditor will move on to manual testing.

Manual Auditing

Even though automated tests can identify possible vulnerabilities in the code, they cannot understand what a blockchain developer is trying to achieve with their application. They also can turn up false negatives. This shows why a manual review of the code is essential. By reading the code and understanding how everything fits together, auditors identify potential issues that automated tests miss.

When an audit team analyzes the code, they can refer back to the project specification and any other supporting documentation to see whether the code performs as it should. A mixture of manual and automated testing is vital to ensuring nothing slips through the cracks.

Initial Reporting

Following manual and automated audits, an initial report highlighting issues and their severity levels is compiled. Furthermore, the security team explains issues with the smart contract and its severity levels.

Code Refactoring

Once the auditor has found issues in the code, they will work with the project team to resolve them. This process can be long and complicated, but it is essential to the project's success. By resolving all issues, you can ensure that your smart contracts are ready for deployment.

When it comes to blockchain applications, security is of utmost importance. That's why it's essential to have a team of experienced auditors who helps identify and mitigate potential issues with your code. Before beginning the deployment process, ensure you have enough time for a complete security audit.

Audit report

Once the audit is complete, the auditor will provide a report detailing their findings. This report will be a valuable resource for the project team and anyone involved in the application. It will help to identify any potential issues that may have been missed and provide a roadmap for resolving them.

How much does a smart contract audit cost?

The cost of a smart contract audit varies depending on the size and complexity of the application. In general, smart contract auditors typically charge USD 5,000 to USD 15,000 but might charge more depending on the size and complexity of the contract.

If you are considering using a blockchain application, smart contract auditing by an experienced auditing team is a no-brainer. Smart contracts execute financial transactions and are relied upon for essential functions. Unlike with other types of software, bug-free code is vital here.

How to Become a Smart Contract Auditor?

A smart contract auditor is a security professional who manually examines the smart contract line by line and uses smart contract audit tools to check for bugs.

An auditor verifies that a contract is securely and correctly implemented on a blockchain network.

Demand for auditors has increased with the rising popularity of smart contracts and the growing crypto-heists associated with them. Although there could be several ways to become a smart contract auditor, here is a step-by-step that you can follow.

Learn programming - any language, whether Java, C++, or python, would work. The aim is for you to understand the fundamentals of coding.
Once you understand coding, move to Ethereum basics and token standards, including ERC20, ERC721, ERC777, ERC1155, ERC4626, and BEP20.
Learn Solidity - is an EVM-compatible programming language used for most smart contracts. And due to its widespread popularity, it has much documentation and study material compared to non-EVM-compatible languages.
Smart contract audit is not only about detecting bugs. It is responsible for optimized code functioning as well. Therefore, it is essential to read about gas optimization, upgradable and proxy contracts, smart contract helper libraries, blockchain protocols, and smart contract debugging.
Develop a clear understanding of decentralized finance(DeFi), the hottest area for auditing. Defi hacks are one of the most popular and recurring phenomena in the blockchain. Hence, you must have detailed knowledge about DeFi smart contract functioning and its vulnerabilities.
Try hands-on smart contract audit tools for a thorough review of the code.
Reporting is an integral part of an audit. Learn report reading so that even you can develop one without errors.
To stay informed about blockchain security, follow and read the blog posts of top security researchers such as Samczun, peck-shield, Mudit Gupta, and others.

Conclusion

A security audit is so essential it might as well be considered a part of smart contract development. It is quite clear that smart contract audits could be a promising tool for improving the functionality of smart contracts. What seemed almost impenetrable had some security vulnerabilities in them. The smart contract audit cost might vary considerably according to the platform or tool you select to use.

Many other factors also affect the efficiency of smart contract audits, such as communication between the project team and the audit team. However, enterprises should work on identifying the challenges of smart contract audits to improve their effectiveness in leveraging smart contracts.

If you intend to become a professional smart contract auditor, you can check out ekolance. They help professionals start working in Blockchain, and they're also running ten weeks of free Smart Contract Audit Training