<p>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.</p><p>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.</p><p>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.</p><h3 id="smart-contracts-benefits">Smart Contracts: Benefits</h3><p>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.</p><p>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.</p><p>Is smart contract enforcement legal? Let's tackle the most pressing concern on our minds.</p><h3 id="smart-contracts-legal-enforcement">Smart Contracts: Legal Enforcement</h3><p>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.</p><p>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.</p><h3 id="audit-of-defi-smart-contracts">Audit of DeFi Smart Contracts</h3><p>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.</p><p>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.</p><p>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.</p><h3 id="relying-on-past-references-will-keep-you-safe-in-the-uture">Relying on Past References Will Keep You Safe in the uture</h3><p>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.</p><blockquote>The DAO ? $55m  loss, etc.</blockquote><blockquote>Lendf.me ? $25m loss</blockquote><blockquote>Parity ? $150 000ETH  loss</blockquote><blockquote>bZx ? $645 000 loss</blockquote><p>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:</p><blockquote>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.</blockquote><blockquote>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.</blockquote><blockquote>An accurate smart contract audit can be difficult to obtain if you don't know who is qualified and trustworthy.</blockquote><h3 id="what-does-smart-contract-audit-entail">What Does Smart Contract Audit Entail?</h3><p>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:</p><blockquote>Specification</blockquote><blockquote>Running Tests</blockquote><blockquote>Running automated Symbolic execution tools</blockquote><blockquote>Manual analysis of the code</blockquote><blockquote>Creating the report</blockquote><p>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.</p><h3 id="final-thoughts">Final Thoughts</h3><p>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.</p>

Hamid Akhtar

Auditing Your DeFi Smart Contracts is Important for Several Reasons

<p>Cryptocurrencies have made a splash these days and this trillion-dollar industry has also caused financial disruption around the world.</p><p>Cryptocurrencies have a remarkable history from the 1980s to the present day. Bitcoin, the first cryptocurrency, has seen spectacular growth, yet not much adoption by financial services is due to its inherent lack of stability.</p><p>Mainstream institutions stay away from Bitcoin because of the significant price volatility. And that's why it's a poor asset for a perfect investment plan.</p><p>Change is the hallmark of crypto space. Decentralized finance (DeFi) is a current trend. Of course, if you're learning DeFi for the first time, you'll be pretty excited by the time we lead you on.</p><h3 id="an-overview-of-decentralized-finance-defi">An Overview of Decentralized Finance (DeFi)</h3><p>DeFi is a short-term acronym for decentralized finance for ongoing projects and applications in the public blockchain sector that has disrupted the traditional financial world.</p><p>Let us look a little further, DeFi refers to financial applications built on blockchain technologies and often brings the role of smart contracts. What are smart contracts? They are automatic enforceable agreements to avoid intermediaries and simply require an internet connection to be accessible.</p><p>Defining Financial Innovation, or DeFi, as a set of applications and peer-to-peer protocols developed on decentralized blockchain networks that allows lending, borrowing, and trading of financial tools with no access rights required. </p><p>DeFi apps are currently built using the Ethereum network, but another generation of public networks is emerging that can provide superior speed, security, scalability, and cost-efficiency.</p><h3 id="smart-contracts-a-role-to-play">Smart Contracts: A Role to Play</h3><p>With <a href="https://techfastly.com/auditing-your-defi-smart-contracts-is-important/">smart contracts</a>, multiple parties can interact without the need for a centralized intermediary through Turing-complete programming languages. The ability of blockchains to leverage smart contracts has made them ideal for developing financial applications.</p><h3 id="defis-historyhow-did-it-start">DeFi's History - How Did It Start?</h3><p>Bartering was the way humans exchanged goods and services in the beginning, but, as humans evolved, economies evolved: We invented currency to facilitate the exchange of goods and services. Coins brought innovations and improved economies, but progress has a price.</p><p>Central authorities have historically issued currencies to support our economies, endowing them with more power as people grew to trust them. The centralized authorities have however occasionally broken trust, leading to questions about their ability to administer the money. DeFi was created with the aim of creating an open financial system that minimizes the reliance on centralized authority.</p><p>DeFi's genesis is claimed to have begun with the launch of Bitcoin in 2009, which was the first p2p digital money built on top of the blockchain. The introduction of blockchain technology into the legacy financial world using Bitcoin was an essential next step towards decentralizing legacy financial systems. Ethereum and, in particular, smart contracts, made this all possible in 2015. </p><p>In the financial industry, Ethereum technology was the first 2nd generation blockchain to capitalize on the potential of this technology within the financial sector. It encouraged businesses and enterprises to build and deploy projects that formed the ecosystem of DeFi.</p><p>With DeFi, there was the opportunity to establish a transparent, robust and independent financial system. The pivotal year for financial applications took place in 2017, when projects began facilitating more features than only money transfers.</p><h3 id="finance-under-centralized-control-challenges">Finance Under Centralized Control: Challenges</h3><p>It is through financial markets that great ideas can be developed and society can prosper. These markets are still dominated by a centralized power. In the current financial system, people ensure their assets are held by intermediaries, such as banks and financial institutions. In this way, risk and control remain at the centre of these systems.</p><p>The 2008 financial crisis demonstrated that bankers and institutions failed to see the risks in the market in the past. The centralization of money leads to the accumulation of risk at the centre, which poses a danger to the system as a whole.</p><p>Initially designed to give individuals full control over their assets, Bitcoin and early cryptocurrency weren't decentralized until they were used for issuance and storage. Up until the advent of smart contracts, it was difficult to provide access to a broader set of financial instruments.</p><h3 id="defi-protocols">DeFi Protocols</h3><p>DeFi has become a full-fledged ecosystem of protocols and applications that deliver value to millions of users. DeFi ecosystems have been securing over $30 billion in assets, making it one of the fastest-growing segments within the public blockchain space.</p><h3 id="lending-and-borrowing-through-defi">Lending and Borrowing Through DeFi</h3><p>The introduction of DeFi allowed lending and borrowing to take on a new direction. A decentralized lending model often referred to as 'Open Finance', offered crypto holders the opportunity to gain annual returns on their loans. In decentralized borrowing, individual borrowers could borrow money at a set interest rate.</p><p>Lending and borrowing are intended to enhance financial service use cases while meeting the needs of the cryptocurrency community.</p><h3 id="decentralized-exchanges">Decentralized Exchanges</h3><p>The Decentralized Exchange (DEx) is one of the core features of DeFi, locking the maximum amount of capital compared to other DeFi protocols. DExs allow users to exchange tokens with other assets, without a centralized intermediary. A centralized exchange (traditional exchange) offers similar options, but the investments available depend on its discretion and costs. One of the negative aspects of CExs, and addressed by DExs, is the extra fee charged on each transaction.</p><h3 id="what-the-future-holds-for-defi">What the Future Holds for DeFi</h3><p>A revolution is taking place in the functionality of money as a result of the introduction of distributed ledger technology. It is the first time in history that a global financial system is being shaped by a worldwide population. The decentralized finance world is actively created by everyone who can participate in the governance of DeFi protocols.</p><p>In spite of some inevitable obstacles that come with operating on the bleeding edge of innovation, the world of decentralized finance is on the path to prosperity. It's hard to predict how this space will develop over time once the power to build financial services democratizes. However, when Defi and fintech intersect and integrate, we'll reach a tipping point where fledgling financial technology becomes a component of a new financial system. One that embodies the ideals of speed, security, accessibility, and egalitarianism.</p>

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