How to Conduct a Smart Contract Audit

May 08, 2024
Zainab Hasan
5 min
How to audit smart contracts

To mitigate the risks and vulnerabilities in smart contracts and ensure the integrity of your project, a smart contract audit is essential. This article explores the world of smart contract audits, explaining what they are, why they are crucial for your business, and the various stages involved in the smart contract audit process.

Key Highlights:

  • Smart contract audits are crucial for blockchain projects to ensure security and minimize risks.
  • Audits build trust, prevent financial losses, reduce development costs, ensure regulatory compliance, and give your business a competitive edge.
  • A comprehensive audit involves project preparation, automated and manual testing, vulnerability classification, reporting, and addressing identified issues.
  • Audits can involve static code analysis, manual code review, black-box testing (limited code access), white-box testing (full code access), and formal verification (mathematical proofs).
  • Auditors leverage various tools for efficient analysis, including Mythril, Slither, Echidna, and Solgraph.
  • Prepare well with clean, documented code. Define audit scope and objectives. Choose a reputable auditor. Communicate clearly, understand findings, and address vulnerabilities. Re-test and potentially re-audit after fixing issues.

What is Smart Contract Audit?

Blockchain is known to remove intermediaries and introduce decentralization. But how is it possible? By using smart contracts. Smart Contracts are those intermediaries that comprise of logic about how a certain mechanism will be executed. 

Simply put, Smart contracts act as self-executing agreements. These contracts hold the key to secure and transparent transactions, automate processes, and facilitate trustless interactions. However, even the most brilliant code can harbor vulnerabilities. This is where smart contract audits come in — a meticulous examination of your smart contract’s code.

Think of it as a security inspection for your digital agreement.  Highly skilled auditors, often with backgrounds in security engineering, meticulously analyze every line of code. Their mission – to identify and eliminate potential security weaknesses, inefficiencies, and bugs before malicious actors can exploit them.

Why Your Business Needs a Smart Contract Audit

A smart contract audit is an investment in the future of your business.  It fosters trust, minimizes risks, and paves the way for a secure and successful blockchain project. 

Your business needs a smart contract audit because; 

Gain a Competitive Edge:  

In a crowded blockchain space, demonstrating a commitment to security through a successful audit can be a significant differentiator.  Investors and users are more likely to gravitate towards projects that prioritize security, giving your business a competitive edge.

Minimize Financial Losses:  

A compromised smart contract can lead to significant financial losses for your business.  Hackers can exploit vulnerabilities to siphon off funds, manipulate transactions, or disrupt your entire system.  Audits act as a preventative measure, identifying and mitigating these risks before they can materialize.

Reduce Development Costs:  

While upfront costs are associated with smart contract audits, they are significantly lower than the potential costs of a security breach.  Audits help identify and fix errors early in the development process, preventing costly rework and redeployment after launch.

Comply with Regulations:

As blockchain regulations evolve, some jurisdictions might mandate smart contract audits for certain types of projects.  By proactively undergoing an audit, your business stays ahead of the curve and ensures compliance with emerging regulations.

Building Trust:

A successful smart contract audit by a reputable auditor acts as a stamp of approval, assuring users that their interactions with your smart contract are secure and their funds are protected. 

Types of Smart Contract Audits

Smart contract audits are essential for building trust and security in your blockchain project. Here’s a breakdown of the key audit types:

Security Audits

These audits identify and fix vulnerabilities that could lead to financial loss to your smart contract and protocol users. Common issues they address include reentrancy attacks (exploiting code loopholes), integer overflows/underflows (calculation errors), and access control weaknesses (improper permissions).

Gas Optimization Audits

These audits focus on reducing the gas (transaction fee) required for your smart contract to run. Lower gas costs improve cost-efficiency and user experience, especially for frequently used applications.

Formal Verification: Mathematical Proof for Critical Systems

Formal verification takes a rigorous mathematical approach to prove that your smart contract functions as intended and cannot exhibit unexpected behavior. This method is ideal for critical systems with high financial stakes. 

It involves:

  1. Formal Specification Language: A clear and unambiguous language is used to express the desired behavior of your contract.
  2. Theorem Proving: Mathematical techniques demonstrate that the code aligns with the formal specification.

Formal verification is complex, time-consuming, and may not cover all possible attack vectors.

Economic Audits

Emerging economic audits evaluate the tokenomics (token economics) and incentive structures within your smart contract. They aim to ensure a sustainable economic model and identify potential pitfalls like pump-and-dump schemes or hyperinflation. Economic audits involve:

  1. Game Theory Analysis: Predicting how users will interact with your contract and the potential outcomes.
  2. Financial Modeling: Analyzing token supply, distribution, and incentives to create a healthy economic ecosystem.
  3. Historical Analysis: Learning from past project flaws to build a more robust economic model.

Continuous Audits

Continuous audits provide ongoing monitoring and reassessment of your smart contract as it evolves. This is crucial for projects that are constantly updated or integrated with other systems. 

The Comprehensive Smart Contract Audit Process

A comprehensive smart contract audit process typically involves several distinct stages, each crucial for unearthing potential vulnerabilities.  Here’s a breakdown of the key steps involved:

Project Preparation:

The initial phase involves gathering all the necessary information about the project. This includes the code itself, detailed documentation explaining its functionality, and any relevant test cases. Then, the auditors perform Threat Modeling, outline Engagement Goals and execute the Pre-Audit Dynamic Testing Framework and scan the code base in an iterative process to develop basic understanding. They further develop presumptions for the developed codebase and whitepaper/documentation.

Automated Testing

Auditors employ tools for running the generalized testing suite, fuzzing campaigns, static analyzers, and linting of smart contracts to analyze your code.  This process happens within the security review phase, which is preceded by project preparation that defines engagement goals, and threat modeling to identify potential attack vectors. Finally, both automated and manual testing work together to comprehensively assess a smart contract’s security.

Manual Testing

In this phase, auditors meticulously examine the logic line by line, scrutinize