TL;DR

A smart contract security audit provides a detailed analysis of a project's smart contracts. These are important to safeguard funds invested through them. As all transactions on the blockchain are final, funds cannot be retrieved should they be stolen. Typically, auditors will examine the code of smart contracts, produce a report, and provide it to the project for them to work with. A final report is then released, detailing any outstanding errors and the work already done to address performance or security issues.

Introduction

Smart contract security audits are very common in the Decentralized Finance (DeFi) ecosystem. If you've invested in a blockchain project, your decision might have been partly based on the results of a smart contract code review.

While most people understand the importance of audits for cybersecurity, not many dive into the lines of code. Let's take a look at the methods, tools, and results typically seen in smart contract security audits so that you can make more informed decisions.

What is a smart contract audit?

1. Smart contracts are provided to the audit team for initial analysis.

2. The audit team presents their findings to the project for them to act upon.

3. The project team makes changes based on the issues found.

4. The audit team releases their final report, considering any new changes or outstanding errors.

For many crypto users, smart contract audits are essential when investing in new DeFi projects. It's become a standard for projects that want to be taken seriously. Certain audit providers are also seen as industry leaders, making their audits more valuable in investors' eyes.

Why do we need smart contract audits?

Since blockchain transactions are irreversible, making sure that a project's code is secure is essential. Blockchain technology's highly secure nature makes it difficult to retrieve funds and resolve issues after the fact, so it’s better to prevent vulnerabilities at all costs.

How do smart contract audits work?

1. Determine the scope of the audit. The smart contract and project specifications are defined by the project (their intended purpose) and the overall architecture. A specification helps the audit team understand the project's goals when writing and using the code.

2. Provide an initial quote based on the amount of work needed.

3. Run tests. Their exact nature will change depending on the auditing team, their analysis tools, and their methods. Usually, both manual and automated tests are carried out.

4. Create a first draft of the report with errors found and provide it to the project team for feedback and follow-up fixes.

5. Publish the final report, considering any action taken by the team to address raised issues.

Smart contract audit methods

Gas efficiency 

Optimizing their performance is also an indicator of the developer's skill. Inefficient steps provide more points for failure and should be avoided. When gas costs are high, smart contracts may fail to execute, even more so when a low gas limit is used.

Contract vulnerabilities

Most of the work in audits involves checking contracts for security vulnerabilities. While some issues can be easy to see, many exploits involve advanced techniques and strategies to drain funds. For example, market manipulation can be used with weak smart contracts to conduct flash loan attacks. To find these issues, auditors start the break testing process and simulate malicious attacks on the smart contract. Common vulnerabilities include:

Platform security flaws

What is an audit report?

The audit report is provided at the end of the audit process. For transparency, projects are expected to share their findings with the community. Most reports categorize issues by severity, such as critical, major, minor, etc. The report will also list the issue's status, as projects are given time to resolve them before the final report's release.

Along with an executive summary, a standard report will contain recommendations, examples of redundant code, and a full breakdown of where coding errors exist. Time is given to the project to act on the report's findings before the final version is released.

Where can I get a smart contract audit?

A number of smart contract audit services have become well-known for their service. Two are particularly popular, and getting an audit from them will require an initial quote and handover of information,

CertiK

 

Also, the vast majority of projects supported by Binance Labs have audited their contracts with CertiK. CertiK releases a leaderboard of audited projects that allows you to compare each one, along with a safety score. Note that, apart from Ethereum, CertiK also covers BSC and Polygon projects.

 

ConsenSys Diligence

How much does a smart contract audit cost?

The exact cost of an audit depends on the number of smart contracts to be checked. Typically, an audit will run into thousands of dollars. A particular large project can easily cost over $10,000. The audit company running your audit and its reputation will also affect how much you pay.

Closing thoughts

Fortunately for investors and users, smart contract audits have become a golden standard. However, when every project has one, it’s no longer an easy indicator of value. This is why it’s incredibly important to read the audit yourself. Even if you don’t have the technical knowledge, it’s helpful to take a look at the comments and severity of potential issues.

When you do come across an audit, you should now at least have an easier time understanding its contents. As always, make sure that any investment decision looks at the whole picture and takes all information into account.