Don't Fear the Auditor. Smart Contract Audit for Blockchain-Based Models
17.10.2022 | 9 min read
A smart contract audit is a crucial component of any blockchain-based business model. It's worth finding a company that provides reliable and effective audit services to ensure the security, decentralization, immutability, and transparency of your smart contracts. These features transform traditional business models, allowing for more efficiency and accountability. With this article will explore the importance of smart contract audits and how they can help your business model succeed in the market. Thanks to the right security audit services, your blockchain-based business can move into full swing.
Why Everybody’s Talking Blockchain
Blockchain technology is being used in more and more industries because it helps organize data so well. By making a shared digital ledger for your business, blockchain makes sure that important information is easy to find and lets employees keep an eye on how the business is run.
On top of that, blockchain technology is changing the way organizations do business and helping companies rethink how they manage when it comes to brand, provenance, professional certifications, copyrights, and other physical and digital assets.
“The best businesses to run on the blockchain are ones that solve a problem of trust between multiple parties or have a peer-to-peer element. When switching to a decentralized business model, you should think about the peer-to-peer incentive structures instead of going through a big middleman,” said Igor Mikhalev, partner at EY-Parthenon.
Blockchain Is Trendy—Should My Company Adopt It?
Of course, cryptocurrencies and nonfungible tokens (NFTs) make headlines when it comes to blockchain use cases, but there are other blockchains and distributed ledger technologies (DLTs) that are also making waves in the business world.
Increased traceability and transparency help a lot of businesses do well, and this isn't just true for businesses in the finance or technology industries. First-generation blockchains and DLTs have shown that they can be used for things like trading, clearing, and settling cryptocurrencies.
Outside of crypto, mobility is one of the most interesting ways to use blockchain. For example, the supply chain for the BMW Group was very complicated. The company uses a complicated global supplier network to make about 10,000 cars a day in 31 plants in 15 countries.
Fraud, a lack of visibility into second-tier suppliers, and a mismatch between supply and demand were all common problems that could stop production and cause quality problems. But over time, the BMW Group made it easier for a few of its suppliers to share information by putting it on a blockchain. It turned out that overstocking and shortages were avoided because everyone in the supply chain could see what was going on in real-time.
What’s Driving the Blockchain’s Adoption
As the number of DLT platforms has grown, so has innovation, and a large, thriving ecosystem has grown up around them. Its members are making decentralized apps that do specialized things like managing identities and managing supply chains.
Today, enterprise adoption is being boosted by technologies that are getting better, changing standards, and new ways to deliver services. For example, there are private and public networks.
Members of the Forbes Technology Council named the companies or fields that will benefit the most in the future. Law enforcement and security, supply chains, identity management, software security, media, messaging apps, SaaS companies, and real estate are some of the things on the list.
Experts also mean Travel and Mobility, Banking and Finance, Shipping and Logistics, Government Operations, Healthcare, Product Development, and Higher Education.
Auditing is Reducing the Fear of Blockchain
Adopting blockchain technology, however, is not always a picnic in the park. In fact, studies have shown that the main reason blockchain technology isn't more popular is that its users don't trust one another. People and corporations alike are hesitant to adopt blockchain-based systems for fear of being forced to make costly or inconvenient adjustments in the future to comply with government regulations.
Therefore, it appears that confidence in the blockchain system is key to its widespread implementation. Security is what can boost confidence in addition to feelings of safety. Nonetheless, it is not external authority but rather the community's own internalized norms and practices that are responsible for this.
Auditing is one such example. There would be much less trust in global financial systems if companies weren't required to have their financial statements audited by an independent external auditor. An audit's value lies in the fact that it verifies management's depiction of a company's financial performance and position as being trustworthy.
Thus, it would appear that good old-fashioned auditing is the way to go. Some of the most successful companies today are spending heavily on cutting-edge research and development and innovative strategies to meet the challenges of the present. Additionally, as the nature of auditing and financial reporting continues to change, audits have become more intricate.
“Blockchain is a more inclusive way to do business, and we see it as a new generation of business models. We help our clients get ready for the future with decentralized technologies. It helps to know this now so that we can get more out of it as we go. On top of that, there are already business models in use, like Helium or Uniswap vs. Coinbase, where we can see that decentralized business models are more profitable than traditional ones,” said Mikhalev.
For that matter, while the blockchain infrastructure helps ensure data is kept private, this does not make the blockchain's applications impenetrable. Also of interest is the fact that making blockchain applications attack-proof is a difficult and time-consuming process.
Why Smart Contract Security is Important
Smart contracts, which are self-executing contracts with the terms of the agreement directly written into the code, are designed to streamline business processes by eliminating the need for intermediaries. However, without proper security measures, smart contracts can expose businesses to significant risks. That is why it is crucial to prioritize smart contract security.
Firstly, smart contracts can pose a risk if they contain vulnerabilities that allow hackers to exploit them. These vulnerabilities can range from coding errors to design flaws, making smart contracts vulnerable to potential breaches. A security breach in a smart contract can result in significant financial losses, compromised data, and damage to a business's reputation. Therefore, it is essential to conduct a smart contract audit to identify and resolve security vulnerabilities proactively.
Secondly, smart contracts often contain critical information such as transaction details, financial data, and identity information. These records are immutable and become part of the public ledger, providing transparency and accountability. However, it also makes them an attractive target for cybercriminals. A breach or a hack could expose sensitive information, damage the network, and undermine critical business processes. Therefore, it is essential to implement robust security measures when designing and executing smart contracts to protect against such risks.
With the rapid adoption of blockchain technology, smart contracts have become an integral part of various industries such as finance, healthcare, and supply chain management. However, as smart contract-based systems become more complex and interconnected, the risks of security breaches increase. A single attack can spread quickly, compromising various smart contracts, which can lead to severe losses
By verifying the integrity of the blockchain protocol, we can be sure that the underlying layer of the entire smart contract ecosystem is safe. Code review during blockchain development, which typically involves a great deal of reliance on static code analysis tools, is the most effective method. Expert security professionals and blockchain developers bear the primary responsibility of auditing code for vulnerabilities.
What's a Smart Contract Security Audit
The audit is a crucial step toward improving smart contract security. It involves analyzing a smart contract's code, design, and performance to ensure it is secure and void of any vulnerabilities. Auditing can help identify and mitigate potential security issues before they can cause significant financial or reputational damage to a business. Here's how an audit can improve smart contract security:
1. Identifying Vulnerabilities: Smart contract audits involve a comprehensive analysis of the code's design and performance, making it possible to identify vulnerabilities in the code. Auditors can identify code errors, bugs, or loopholes in the code that hackers can exploit for malicious purposes. Identifying these vulnerabilities and addressing them can prevent potential breaches, keeping smart contracts secure.
2. Ensuring Contract Fulfillment: Smart contracts are programmed to execute transactions when specific conditions are met. Audits can ensure that these conditions are met, and the code is functioning correctly to fulfill the contract's objectives. An audit can confirm that the smart contract executes as intended, ensuring transparency, accountability, and trustworthiness for the parties involved.
3. Improving Legal Compliance: Smart contracts are subject to various legal requirements depending on the jurisdiction or industry. An audit ensures that smart contracts meet legal and regulatory requirements, preventing possible legal consequences. This can help increase the confidence of stakeholders in the smart contract's integrity and security, leading to smoother and safer transactions.
Smart contract audit methodologies are the frameworks adopted by auditors to test and analyze smart contract code and determine its security and efficiency. These methodologies comprise a set of procedures, guidelines, and tools that auditors use to ensure that smart contracts are free of vulnerabilities.
1. Static Analysis: This method involves analyzing the code's structure, syntax, and other aspects without executing the code. It helps to identify vulnerabilities embedded in the code by detecting code patterns, unexpected behaviors, untested code, and redundant code. This can be done manually or by using specialized tools.
2. Dynamic Analysis: This methodology tests the smart contract's performance by running simulations of transactions and monitoring how the contract executes. Auditors can identify performance issues, violations of contract rules, and potential attacks through this method.
3. Formal Verification: Formal verification is a rigorous mathematical approach that determines whether a smart contract meets its correct behavior specifications. This method uses automated tools to verify the contract's code, analyze the code for errors and eliminate vulnerabilities.
4. Peer Review: This method relies on the collective expertise of a group of auditors who review the smart contract's code and provide feedback. This feedback helps to improve smart contracts' security, identify possible vulnerabilities and areas of improvement.
Smart Contract Audit Service. Choosing the Right Audit Firm
To choose the best company for smart contract auditing, consider several factors, such as their expertise, experience, reputation, and services. Look for a company that offers comprehensive audit services, including a thorough analysis of the contract's security, code correctness, and legal compliance. Consider their experience in the industry, the size of their team, and the reviews provided by their clients.
Additionally, it is important to ensure the company uses the latest security tools and methodologies to conduct its audits. Finally, compare the range of services and rates offered by different companies to find the one that best suits your needs and budget. By following these factors and guidelines, you can select a reliable and professional company that can provide a complete and thorough smart contract audit.
As time has passed, blockchain technology has gained widespread attention. Cryptocurrencies aren't the only thing it's used to support, though; blockchain technology has many other uses. Banks and financial services, healthcare, food safety, and video games are just a few of the sectors where blockchain has found widespread and fruitful implementation.
While blockchain itself is highly secure, there have been cases where security flaws have been uncovered, particularly when it comes to how it interacts and integrates with third-party applications and servers. This highlights the importance of conducting a blockchain security assessment to plug these security holes and prevent vulnerabilities from being exploited in the software.