Smart contracts are the innovation that propelled blockchain technology to where it is today. This invention fulfills the agreement between all parties in a deal without the need for intermediaries. As a result, the security and immutability of a blockchain network is increased, allowing the development of numerous and diverse applications.
Unfortunately, smart contracts aren't perfect and could potentially cost millions if hackers can exploit their smallest loopholes. For example, some famous attacks on smart contract code flaws include:
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crypto exchange KuCoin lost $280 million in September 2020
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DeFi project Harvest Finance lose $20 million .
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Pickle Finance lost more than $19 million at the hands of hackers.
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Stablecoin Origin Dollar lost more than $7 million.
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The DeFi protocol dForce lost almost $25 million.
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Ronin Bridge loses 600 million dollars due to a hack.
These are just a few examples of the damage a hacker can cause by exploiting a critical vulnerability in smart contracts. The good news is that such financial catastrophes can be avoided thanks to smart contract auditing. In fact, if you decide to support a DeFi protocol today, you may want to check first if it has a smart contract audit report.
What is a smart contract audit?
A smart contract audit is a complex testing process that aims to ensure the viability of a project's smart contract code.
Typically, a development team works on the code for a protocol before asking an outside auditor to determine its feasibility. The audit team then presents its findings to the project developers, who make any necessary changes and repairs. This process is repeated until the auditor confirms that the code is 100% error-free. Finally, the audit team publishes a final report, which provides the project with an industry standard of verified security.
Many cryptocurrency users rely on smart contract audits from reputable auditors to determine if a specific project is worth investing in.
How does smart contract auditing work?
Auditors generally practice manual auditing, although some companies offer automated auditing tools, allowing project developers to take a more hands-on approach to the process.
While each company may approach a new project differently, smart contract auditing typically takes place as follows:
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Developers provide the auditor with project specifications, code information, and overall architecture. These details help the audit team determine the purpose of the smart contract audit and subsequently a quote for the necessary work.
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After agreeing on terms, auditors run manual and automated tests on the smart contract code. Depending on the purpose of the code, these tests may differ in nature and method.
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The audit team provides the developers with a first draft of the audit report containing the errors they found. In addition, they include comments and possible solutions.
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Developers use the draft to fix code before forwarding it to auditors.
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Auditing continues until the code is free of potential vulnerabilities or bugs. Finally, the auditor publishes the final report, including additional feedback.
The benefits of smart contract auditing
The development of a DeFi protocol has evolved significantly from its humble beginnings when a part-time programmer would design one just for fun. Companies invest money, time and resources to create advanced and error-free smart contracts. Therefore, they cannot afford the risk of promoting a flawed project.
A vulnerable smart contract means more than just a failed programming attempt. It can tarnish a developer's reputation and permanently destroy projects that took months or years to launch. As a result, smart contract auditing has become one of the first stages of development for any promising project. Plus, it comes with exceptional benefits, such as:
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Enhanced protection against hackers.
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Avoid costly smart contract code flaws.
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Safest decentralized financial products on the market.
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Increased confidence for the entire industry
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Greater credibility in an increasingly competitive sector.
Above all, a smart contract audit is an expert review of a DeFi project. Thanks to this tool, developers can produce better and more sustainable work, which translates into more secure applications. In addition, investors and users can rely on the audit report as a stamp of approval from an external professional on a new project.
final thoughts
Fundamentally, smart contract auditing is the ideal method to ensure that a project starts without critical vulnerabilities or flaws. Thanks to expert and renowned auditors, the process becomes easier and more accessible for novice developers and new projects. In the long term, this should contribute to a more secure and reliable DeFi industry.
