Through this article, let us go in-depth about the significance of smart contract audits.
When the concept of smart contracts was first introduced in 1996 by Nick Szabo, it could not evolve beyond theory until the development of blockchain technology. However, the first blockchain, namely Bitcoin, does not support Smart contracts natively; the blockchain protocols developed later introduced this concept.
When Ethereum came into existence in 2015, it made smart contracts a reality, and the use of smart contracts has been extensive ever since. Many applications, including financial applications, real estate, supply chain, and healthcare remain powered by smart contracts.
Smart contracts deal with valuable assets worth millions of dollars, so it's crucial to ensure that they are secure and free from vulnerabilities. This is to prevent attackers from manipulating the assets. One way to achieve this is by conducting a smart contract audit, which can help identify and mitigate any security risks associated with the code of the contract. Below are some vulnerabilities you can find in smart contracts.
Reentry attacks: where a bad actor repeatedly calls a function in a smart contract, leading to draining its balance or other malicious activities.
One of the most well-known examples of a real-life reentrancy attack happened in 2016 on the DAO (Decentralized Autonomous Organization) platform, which was built on top of the Ethereum blockchain. The DAO was a decentralized investment fund that raised over $150 million in Ether (the cryptocurrency used on the Ethereum blockchain).
A hacker exploited a vulnerability in the DAO's smart contract code to launch a reentrancy attack. The attack involved repeatedly calling a function that allowed the hacker to withdraw Ether from the DAO's account without the proper checks and balances in place. The attacker was able to draw off over $50 million worth of Ether from the DAO's account.
Syntax errors: errors caused by logical or structural mistakes that can prevent smart contracts from functioning correctly.
A real-life example of a syntax error attack occurred in 2016 on a smart contract known as "The DAO." The DAO was an autonomous investment fund on the Ethereum blockchain, which raised approximately $150 million worth of Ether through a crowdfunding campaign.
A flaw in the contract's code allowed an attacker to exploit a vulnerability known as a "recursive call." This error in the code allowed the attacker to repeatedly call a function and drain funds from The DAO until they were able to steal approximately $50 million worth of Ether.
Frontrunning: an attack where a malicious actor can see and act on transactions before they are confirmed on the blockchain.
One real-life example of a frontrunning attack occurred on the Ethereum network in 2020. A user noticed that a particular smart contract was about to execute a transaction, which would likely increase the price of a token. The user then quickly started, with a higher fee ensuring that it got processed before the original transaction.
As a result, the user purchased a large amount of the token at a lower price before the original transaction started, causing the price to surge, allowing the user to profit significantly from the price increase, at the expense of other users who did not execute their transactions quickly enough.
Undefined behavior: areas in the smart contract's code where the contract's behavior is unclear and can create confusion and vulnerabilities.
Integer overflow and underflow: common errors in smart contract development when a contract tries to execute a mathematical operation beyond the maximum or minimum number that can be represented. However, in Solidity 0.8, the compiler will automatically take care of checking for overflows and underflows.
Data exposure: variables, memory locations, and external calls that can leak sensitive information to the public.
Timestamp dependence: a smart contract relying on the current timestamp for important decisions can be manipulated by bad actors.
Denial of service (DoS) attacks: hackers overload the contract by using many transactions or requests, preventing the contract from functioning properly.
The above are the most common smart contract vulnerabilities that can lead to serious issues. Other potential vulnerabilities.
Irrelevant code
Improper initialization
Improper locking
Uncontrolled resource consumption
Incorrect behavior and business logic
Poor adherence to coding standards
Incorrectly handled exceptions
Incorrect work with ERC-20 tokens
Using the blockchain function
Missing withdraw functions
Using an obsolete function
In conclusio, smart contract developers should follow best practices, such as performing code reviews, testing thoroughly, and keeping up to date with the latest security recommendations to mitigate vulnerabilities and ensure the security of smart contracts.