Why Are Smart Contract Audits Essential For Blockchain Development

Smart contracts are talked about quite a lot. What is often ignored, however, is their safety. On one hand, we have self-executing mechanisms that don’t require mediators. On the other, it takes one look at the crypto market to see how unsafe smart contracts can be.

Today, we talk about the importance of smart contract audits and the ways they make smart contracts safer.

Most Common Issues

Smart contracts are the backbone of blockchain. In many cases, chain issues can be traced back to an error within the code. But before you throw stones at the houses of developers, let's imagine a smart contract code. A smart contract determines actions that follow commands initiated by a user or an owner of the contract. If we take Solidity as an example, it’s a fairly simple language easily mastered by developers. Still, it’s not always enough. Every symbol matters in the code, and every typo can bring unpredictable results, from minor malfunctions to the loss of millions of dollars in funds.

A more dangerous reason so many projects go up in flames is malicious activity. Every so often, the source of such activity is none other than the project’s owner. Rug pulls have been a plague for the decentralized finance community since the beginning. Unlike a coding error, a rug pull usually indicates premeditation. More often than not, a project owner releases their decentralized app (dApp) with a clear intention to encourage users to invest in it, along with backdoors that make it possible for a privileged user to withdraw all the funds.

The community has been learning to detect potential rug pulls. They can be a result of malicious actions from owners, users or even an accident. But let me jump ahead of myself a little to say that audits have become one of the signs of good intentions.

The last popular reason for security breaches is hacker attacks. In the first quarter of 2023, $222 million was lost to 52 flash loan and oracle manipulation attacks. These types of exploits attract hackers due to their profitability, and they are becoming increasingly more complex every day.

What is a security audit?

Security audits of smart contracts exist with the sole purpose of detecting vulnerabilities and errors in a dApp, protocol or blockchain. Since all of the above work on smart contracts, reviewing said contracts is a necessary step in the process of development. An audit helps to detect anything that can serve as an entry point for an attack, whether the attacker is a member of the project’s team or a third party.

Naturally, not all security audits are equally efficient. Along with scam projects, scam auditors exist, offering a report or a certificate that doesn’t reflect the real state of affairs. A quality audit contains detailed information about the project itself and the issues that have been discovered, whether they were fixed by the developers or not.

The process of an audit includes several important steps, and it’s imperative that not one of them is skipped.

1. An overview of the process helps the auditor understand the scope of work and the intended functionality of a smart contract or a dApp.
2. An automated audit is performed so that the most obvious issues can be detected, and there is a guarantee that a human auditor won’t miss them. Additionally, and to a better effect, unit tests are run. These tests should cover each string of the code, and every string must show good results.
3. A manual audit digs deeper into the code and involves human professionals looking into the issues. More experienced companies tend to perform manual audits in separate teams to avoid the element of human error. The auditor’s task here is not merely technical, as they must make sure that the contract follows the expected business logic since the code itself can be interpreted in different ways.

Achieving perfection in auditing is never a guarantee, but truly professional companies aim to detect as many issues—minor or severe—as possible.

Truths And Myths About Auditing

To get a better sense of the reality behind auditing, let's look at some of the truths and myths of the process.

Truth: Audits are equally important for users and project owners.

It’s never just one side that wins from conducting an audit of a project. For a project owner, it’s a clear sign that their venture takes the security of its users seriously, and the owners have no intention of scamming people. Users, on the other hand, can get familiar with the project and potential risks they’re facing if they invest in or use the dApp in question.

Myth: An audit guarantees safety.

Unfortunately, even the most advanced security audits and tests can’t always provide a concrete defense against exploits. Since some of them are tied to third-party protocols, even the most thorough audit wouldn’t help if the protocol is unsafe.

Similarly, it’s always up to the developers to either accept or ignore the suggestions provided by auditors. If the company doesn’t change the code, there’s no protection against an attack. Keep in mind that protection against a potential rug pull generally does not exist.

Truth: Having an audit is critical.

A project that has not been audited, regardless of users’ testimonials, cannot be trusted. Developers have to take their projects seriously enough, and they have to want to deliver the best service they possibly can.

Myth: One audit is enough.

Every change in the code may affect every process within the protocol. This is why even slight changes require a new audit. Just because a project has been audited upon its launch doesn’t mean it will remain just as secure after an update.

Conclusion

Smart contract security audits have become an industry standard, and they occupy an important place in the world of blockchain and smart contracts. Regardless of the service, be it a DeFi app or a crypto game, audits are an essential element of development. Overlooking them can be a grave error.

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