Smart Contract Audit

What Is a Smart Contract Audit?

A smart contract audit is a deep and systematic examination of a smart contract’s code. The audit is done to find faults, problems, and security weaknesses in the code. The objective is to identify all these issues and come up with improvements and ways to solve them. 

Smart contract audits are generally necessary since most contracts are concerned with financial assets and items of value. Smart contract checks are complicated and multidimensional as they usually interrelate with other contracts. Integrations with other systems can cause system vulnerabilities. Smart contract audits usually expand to other smart contracts linked through interactions.  At times, audits end up following interactions up the chain of interactions. Smart contract audits usually involve analysis of test runs and manual code checks.

Smart contracts usually administer large quantities of funds, and a simple error or weakness can cause huge losses. As a result, the decentralized application’s users and stakeholders can end up losing all assets that are in the ecosystem.

The auditors' findings and recommendations are released in advance to the project team, and their responses are mentioned in the final audit report. A smart contract audit is a mark of legitimacy for any cryptocurrency project. 

Smart Contract Audit Process

Smart contract audits are typically executed in several steps:

• The initial step involves the project and audit team agreeing on the scope and requirements of the audit. 

• After this, the smart contract's design, purpose, structure, and other details are shared with the auditors. 

• Finally, the testing phase is where the auditors test the separate functions (unit tests) and then larger chunks of the contract. This is known as integration testing. 

• Automated bug detection and analysis tools are used to look for common contract vulnerabilities. 

• In the end, auditors manually review the code to assess the developer’s intentions and interpret their findings in that context. 

• The Final stage is the report issuance with the findings and the project team fixes.

Smart contract audits are essential as they help protect the blockchain from coding weaknesses. Unfortunately, a hacker exploited one such flaw in 2016, which placed millions of dollars at risk and ended up splitting the Ethereum chain. 

The hacker used a recursive call bug to siphon off $ETH worth millions from a "DAO" democratized hedge fund. 

The subsequent steps by the community over how to return the funds led to disagreements and a hard fork. Smart contract audits are also crucial in the up-and-coming DeFi industry, where bug-filled smart contracts are rushed out to satisfy investor demand. This has caused several expensive hacks in 2020 alone that are worth millions. Harvest, Yam Finance, bZx, Balancer, and Eminence are the most remarkable.