Smart contracts are computer protocols that allow an agreement to be verified, controlled, and executed digitally. Smart contracts are essential for Decentralised Finance, or DeFi. They are, however, one of the most vulnerable components of the DeFi ecosystem. The necessity of DeFi smart contract audit will be discussed in this blog.
Unaudited smart contracts are to blame for the hacks we read about in the press, as well as the tremendous losses sustained by those who utilize DeFi services. But, before we can understand the significance of smart contract audits, we must first understand how they function and where they are employed.
Smart contracts are used to facilitate transactions on the blockchain network. Signatories (using digital signatures), the contract's subject, and the contract's precise provisions are the three primary objects of smart contracts. Smart Contacts are employed in nearly every industry where Blockchain is used, including healthcare, insurance, supply chain management, financial services, legal processes, initial coin offerings (ICOs), and even government voting systems and business management.
The first and most obvious benefit of using smart contracts to enforce your transaction's conditions and terms is that they save you money by preventing third-party intervention. Furthermore, because they function on blockchain systems, there is no need for additional security or regular data backups. They are much faster than the traditional procedure in terms of speed since computer protocols automate processes, reducing the likelihood of errors and increasing accuracy.
It's also worth noting that blockchain is a shared database shared by many corporations and individuals. As a result, no single person, company, or body has authority over it, making it a skewed system. At the same time, keeping a shared record by numerous parties makes it unhackable.
Is smart contract enforcement legal? Let's tackle the most pressing concern on our minds.
UKJT Chair Sir Geoffrey Vos announced the results of the UKJT's consultation in a document titled Legal statement on crypto assets and smart contracts on November 18, 2019. The major result was that smart contracts can satisfy all of the legal criteria of English law Contract formation principles, and hence can be understood and enforced using conventional or well-established laws or legal concepts. As a result, the courts will be able to enforce them, which will assist to restore market trust.
This is just one example in one country, but it demonstrates how smart contracts have the ability to replace traditional contracts and provide a slew of benefits across the board. However, there is one key stumbling block that needs to be addressed.
Although the underlying Blockchain technology of a smart contract is secure from hackers, the project may be hacked if we fail to maintain a high degree of security and code quality. As a result, smart contract cybersecurity is critical; failure to do so will not only result in significant financial losses but will also permanently lock down the assets under contract. Aside from that, these agreements are legally enforceable. As a result, a smart contract audit is strongly advised.
A smart contract security audit is a technical evaluation of a blockchain application and its supporting artifacts. The main goal of obtaining a smart contract audit is to uncover and destroy smart contract vulnerabilities, as well as to maintain track of the contract's interactions' reliability.
This can be accomplished in two ways: manually (by independent auditors who produce a report upon completion) or automatically (by software tools running over the codebase) by simply following four basic steps: assessment, verification, testing, and reporting.
Furthermore, we will attempt to discuss and clarify some critical smart contract audit concerns that must be considered while eliminating flaws and errors from projects. But, first and foremost, I believe in learning from past mistakes before devising future tactics and goals. So, let's take a look at some recent cases/projects that were hacked because their smart contracts were not inspected.
The DAO – $55m loss, etc.
Lendf.me – $25m loss
Parity – $150 000ETH loss
bZx – $645 000 loss
Getting a smart contract audited requires your complete focus. You won't be able to hire someone to do it for you. While having your smart contract audited, you will face a number of problems, including:
Reentrancy Attacks, short address assaults, replay attacks, and reordering attacks are some of the most prevalent weaknesses that smart contracts encounter. An audit must be thorough enough to cover all potential threats.
It can take a few days or perhaps a month to perform a smart contract audit. It's important to remember that the length of the audit is determined by the type of smart contract audit and the contract's size. Even if you get to go to the market as soon as possible, you must ensure that it is adequately audited.
An accurate smart contract audit can be difficult to obtain if you don't know who is qualified and trustworthy.
In the last section of this article, we discussed two methods for conducting an audit: manual and automated. We'll understand a well-defined approach for providing the finest audit for the smart contract here:
Running automated Symbolic execution tools
Manual analysis of the code
Creating the report
This method not only speeds up the process by allowing the audit and code fixes to happen simultaneously, but it also keeps the focus on detecting and correcting bugs rather than on producing a nice-looking report.
To summarise, examples of numerous high-profile projects losing a significant amount of money have made us all aware of the critical requirement for a thorough smart contract audit. Even if your smart contract is audited, it does not guarantee that it will remain secure from new attacks indefinitely. The audit rules continue to evolve in tandem with the progress of DeFi. Any reliance on an oracle or another contract may, in some situations, result in a new vulnerability as a result of their alterations. As a result, conducting regular audits should be your preferred method.