After Billions Hacked in Crypto, the Case is Clear for a Standardized Audit Process

Decentralized finance (Defi) is a rapidly growing subsector of the crypto industry, with its total value locked (TVL) reaching an all-time high of $256 billion in 2021. However, along with this massive growth, there has been an increasing amount of exploits and attacks on protocols in the blockchain space. 

A report by CBS showed that $3 billion worth of funds were stolen in 2022 alone, with cross-chain bridges becoming a major target, according to a tweet by Chainanlysis.

One of the most significant exploits in 2022 was the attack on Axie Infinity’s Ronin Bridge, which led to over $624 million being stolen from the cross-chain scaling protocol. However, cross-chain bridges are not the only protocols targeted by hackers; malicious actors have exploited Defi platforms and NFT projects due to vulnerabilities in the smart contract code.

An effective way of preventing exploits is by auditing the code used in the smart contracts that power blockchain-based protocols. Therefore, smart contract audits are essential for ensuring the security and reliability of smart contracts on blockchain networks. These audits thoroughly examine a smart contract’s code and functionality to identify and mitigate potential vulnerabilities or security risks.

While there is an auditing process to detect vulnerabilities in smart contracts, a standardized system must be put in place to ensure a consistent level of security for projects in the crypto space.

How smart contract audits work

A smart contract audit typically begins with a review of the contract’s source code. The auditing process includes analyzing the code for potential bugs or vulnerabilities malicious actors could exploit. The process can consist of uninitialized variables, possible overflow or underflow conditions, and other issues that could lead to unexpected behavior. 

Once the code review is complete, the auditor will test the contract in a simulated environment to ensure it behaves as expected. Testing can include running various scenarios, such as sending transactions to the contract, calling its functions, and more. By testing the smart contract this way, the auditor can identify potential issues that may not have been evident during the code review.

After the code review and testing, the auditor will report to the contract’s developers. This report will typically include a list of any identified vulnerabilities or issues, along with recommendations for fixing them. 

The developers can then use this information to make the necessary changes to the contract before it is deployed on the blockchain. One of the main benefits of smart contract audits is that they can significantly improve the security of a decentralized application (dapp), NFT project, token bridges, and other blockchain-based protocols.

For example, the blockchain security organization Certik has audited the smart contracts for platforms like the crypto exchange Binance and their Binance Smart Chain (BSC), Bancor, the Pancakeswap DEX, and the Shapeshift exchange.

For example, Fluditity, a yield-generating blockchain protocol that rewards people for spending their cryptocurrencies, has been audited three times so far by Bramah Systems, Verilog Solutions, and Hashlock. Hacken and Certik have audited Crypto exchange Huobi exchange. It is essential that any vulnerabilities are found and secured in blockchain-based platforms and protocols since users are at risk of losing their funds due to the financial nature of most activity on the blockchain.

The importance of smart contract audits

By identifying and mitigating potential vulnerabilities or security risks, audits can help ensure that the contract will function as intended without the risk of being exploited by malicious actors. This is especially important for contracts that handle large amounts of value, such as those used for decentralized finance (DeFi) applications.

Smart contract audits can also help to improve the overall trust and confidence in the blockchain industry. By ensuring that smart contracts are secure and reliable, audits can build trust in the technology and increase adoption among businesses and individuals. It is important to note that smart contract audits are not a one-time process. As the blockchain ecosystem evolves and new threats emerge, smart contracts should be regularly audited to ensure they comply with the current security standards.

Smart contract audits are essential for blockchain developers, as they can help to ensure that their contracts are secure and reliable before they are deployed on the blockchain. In addition, this can help to protect the developers from any potential legal or financial liabilities.  Additionally, having a contract audited to a standard process helps to demonstrate that the developer has taken the necessary steps to ensure the security of the contract, which can help to build trust in the developer’s work.

For users of blockchain networks, smart contract audits can ensure that the contracts they interact with are secure and reliable. By knowing that a contract has been thoroughly audited, users can have confidence that it will function as intended and that their assets are safe.

Smart contract audits are a critical process for ensuring the security and reliability of smart contracts on blockchain networks. Furthermore, they are essential for blockchain developers and users alike, as they can help protect against potential vulnerabilities and security risks while building trust in the technology. 

Why a standardized audit process is necessary

Standardized audit processes are needed for blockchain projects and smart contracts to ensure that the technology is secure and reliable. Without a standardized process, audits can vary significantly in scope and methodology, making comparing the security of different contracts difficult. In addition, a standardized process helps to ensure that all contracts are audited to the same high standards, providing a consistent level of security for all projects.

Furthermore, a standardized audit process can also help to improve the overall quality and security of smart contracts. Having a set of guidelines and best practices that all auditors must follow ensures that all contracts are examined similarly. This can help identify common vulnerabilities and ensure that best practices are followed.

Conclusion

A standardized audit process is essential to ensuring the security and reliability of blockchain projects and smart contracts. It helps to identify and mitigate potential vulnerabilities, build trust in the technology, and protect developers from legal or financial liabilities. 

Audits also help to improve the overall quality and security of smart contracts by providing consistent protection for all projects. With the increasing adoption of blockchain technology, smart contract audits are becoming even more important, and developers and users must take them seriously.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.