Blockchain smart contract is a relatively new technology, and with the system going mainstream, we see more security issues arise as a result of vulnerabilities in DeFi. This article discusses another critical factor affecting security in the DeFi landscape: smart contract vulnerability. Smart contracts are specialized features in blockchain technology used in executing contracts and agreements between concerned parties. It is a series of codes written to automate the exchange of assets without the need for an intermediary.
Although smart contracts existed way before DeFi, their first implementation was actualized when blockchain technology came into existence. And we've seen this feature power the decentralized finance system, giving it the ultimate edge over Cefi. However, like any new technology, smart contracts have been subjected to a series of vulnerabilities since inception. This article aims to give an overview of the four most common vulnerabilities. Before that, let's briefly discuss what a smart contract is.
What Is A Smart Contract?
In simple terms, a smart contract is a set of codes that simplifies and automatically verifies a contract. In place of having an intermediary to generate contracts and carry out transactions, smart contracts automate such contracts without requiring human interactions. Many enthusiasts would tell you that a smart contract is a crucial element that powers the decentralized financial system. And truly, that is indeed a simple truth.
Key vulnerabilities of smart contract
The key elements that make a good smart contract are immutability, transparency, and value. However, these values have also contributed to their exposure to cyberattacks, theft, and exploitation. Therefore, there is always a high tendency for a smart contract to be liable to theft and cybercrimes.
Frontrunning
Frontrunning is one of the most common exploitations that we see in the DeFi market and with decentralized exchanges. It is a predatory transaction that happens when an individual has prior knowledge of a trade or transaction that is about to but yet to happen, exploits, and profits from such a transaction. This vulnerability results from the smart contract's transparency and how easy it is to see unconfirmed transactions on a blockchain network.
Integer Arithmetic Error
Since smart contracts generally represent values as integers, the system is programmed to round up these figures to a maximum of 18 decimal places. And one major setback to this approach is that integers can overflow. Although developers are well aware of this fact and have adopted a secure math library to counter the setback, another problem encountered is that there could be inaccuracy in values during the calculation process.
Block Gas Limit
Missing Parameters
This occurs from sloppy designs in smart contracts and some other programming mistakes during the process. These mistakes frequently come from a design process oversight. It is one of the vulnerabilities in smart contracts that could be easily exploited. To counter this, it is a good practice to have textual instructions that list the inputs and prerequisites of all operations.
Smart Contract Security Audit
Developers and project creators know how vulnerable smart contracts can be. A security audit is one of the ways they avoid errors and prevent security attacks on the system. A smart contract security audit checks for vulnerability and helps determine whether a smart contract performs as it should without imposing risks of theft and exploitation for the network users.
A smart contract audit could be done manually or automatically. The manual approach looks at codes and their re-entry problems, while the automated method uses bug-detecting software. The choice made often varies for different projects.
Final Note
Security in DeFi has always been a concern, and with the network's massive growth, there seem to be more and more security attacks on the system. However, there has been a pattern of improvements lately, and DeFi projects are beginning to realize the urgency and severity of the security problems. Lastly, while security audits have been one of the major solutions to managing security risks in the system, developers might need to be more steadfast in finding more solutions to mitigating the drawbacks of security in the landscape.