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Mitigating Risks: How Smart Contract Security Audits Can Safeguard EVM Chains

Imagine a buggy smart contract accidentally sending millions of dollars in cryptocurrency to the wrong address. Unfortunately, this scenario isn't science fiction.

In 2016, a vulnerability in a smart contract on the Ethereum blockchain resulted in the loss of approximately $60 million worth of Ether (ETH). This incident highlights the importance of smart contract security audits.

If you’re a software engineer or tester working with smart contracts on EVM chains, this is definitely one for you! In this article, you’ll learn how to avoid scenarios like the ones we just discussed and other issues that arise from neglecting smart contract security audits.

We’ll start with an overview of smart contract security audits and then discuss the processes involved in conducting these audits.

Let’s get started!

Understanding Smart Contract Security Audits

Smart contract security audits are a form of blockchain security testing involving a thorough review and analysis of the contract's code to ensure no vulnerabilities or inefficiencies can be exploited.

These audits ensure the safety and reliability of smart contracts, including but not limited to Ethereum Virtual Machine (EVM) chains. Due to their popularity and an established developer ecosystem, EVM chains are very susceptible to frequent attacks, making them a potential security concern.

Smart Contract Security audits rely on some of the same techniques used in broader blockchain testing, such as ****static code analysis and manual code review. However, they typically go deeper, involving specialized tools like Mythril and Slither and focusing on specific security vulnerabilities.

N.B: A smart contract security audit differs from a blockchain security audit. A smart contract security audit analyses the protocol’s smart contracts, whereas a blockchain security audit is an overall assessment of the project's core blockchain ecosystem aimed at eliminating any potential vulnerabilities.

The next section discusses the typical process of carrying out smart contract security audits.

The Audit Process

A smart contract audit follows a standard procedure and may differ significantly among smart contract auditors. The following is a typical procedure:

  1. Preparation: This initial stage involves gathering documentation and understanding the contract’s functionality. Auditors obtain the code design models, compile code specifications, and examine the project's architecture to gain a comprehensive understanding. This stage helps auditors understand the goals of the project and determine its scope.
  2. Automated testing: Automated testing checks every possible state of a smart contract and raises alerts around issues that could undermine the contract’s functionality or security. In this stage, auditors may conduct integration tests to explore large amounts of code, unit tests on individual functions, and penetration testing that probes for security vulnerabilities.
  3. Manual code review: This stage involves a team of security engineers carefully reading the project’s code, checking for errors and vulnerabilities, and understanding how everything fits together. This stage allows auditors to identify potential issues that automated tests may miss.
  4. Classification of errors: During this stage, auditors classify each error according to the severity of the issue it could lead to.
  • Classification of errors and Reporting:
    • Critical — These types of issues impact the safe functioning of a protocol.
    • Major — Centralization and logical errors that can lead to a loss of user funds or protocol control.
    • Medium — Affects the performance or reliability of the platform.
    • Minor — Inefficient code that doesn't directly compromise the application's security.
    • Informational — Related to style or industry best practices.
  1. Reporting: During this stage, auditors document findings and provide recommendations in a detailed report. This report includes:
    • Identified vulnerabilities and their potential impact
    • Recommendations for mitigation.

How Smart Contract Security Audits Addresses EVM Vulnerabilities

The following subheadings explain how Smart Contract Security Audits Solve Common Vulnerabilities in EVM Smart Contracts including some real-world case studies:

Reentrancy Attacks

Reentrancy attacks occur when a smart contract function calls an untrusted external contract, enabling that external contract to drain user funds or conduct other malicious actions by recursively calling the original contract. One example is the 2016 DAO (Decentralized Autonomous Organization) Hack. The hack was due to a re-entrance vulnerability in its smart contract code, which resulted in the loss of 3.6 million Ether.

How Audits Can Solve This:

  • Manual Code Review: Manually inspecting the code to identify patterns where external calls are made before state changes are finalized. This allows pinpointing potential reentrancy vulnerabilities.
  • Automated Tools: Automated tools like Etherscan can detect reentrancy vulnerabilities.

Arithmetic Overflow and Underflow

An arithmetic overflow or underflow occurs when a smart contract performs an arithmetic operation that outputs a number that exceeds or falls below the current storage capacity, leading to incorrect calculations.

A simple example of an overflow or underflow is when a number reverts to its min/max value. For example, a uint8 value can range from 0 to 255. If your smart contract previously didn't manage the state of this value properly, it could potentially reset back to 0, or vice versa, go to the 255 max value a uint8 can be.

How Audits Can Solve This:

  • Manual Code Review: Auditors check arithmetic operations in the code to ensure they are safe. This includes verifying that operations do not exceed data type limits.
  • Automated Tools: After manual review, static analysis tools like Slither can be used to double-check the code for arithmetic operations that might result in overflows or underflows. This step flags potential vulnerabilities that manual review might miss.

Denial of Service (DoS) Attacks

Denial of Service (DoS) attacks occur when a smart contract is rendered unresponsive or unavailable by consuming all available computational resources (gas) in a transaction.

For instance, an attacker deploys a smart contract with a function designed to consume excessive gas in a single transaction. By repeatedly calling this function, the attacker can cause the target contract to run out of gas, rendering it unresponsive.

How Audits Can Solve This:

  • Resource Management Review: This review analyses the code for loops, external calls, and heavy computations that could be exploited for DoS attacks.
  • Use of DoS Mitigation Solutions: Auditors can recommend the use of DoS mitigation software, such as web application firewalls (WAFs), intrusion prevention systems (IPS), or cloud-based DoS protection services.
  • Fallback Mechanisms: Auditors recommend implementing fallback mechanisms, such as setting gas limits and implementing circuit breakers to temporarily pause the smart contract's functionality in case there's a surge in transaction volume to handle DoS attempts and ensure critical functions have checks to prevent being blocked by DoS vectors.

Conclusion

In summary, EVM vulnerabilities can compromise the reliability of smart contracts, but regular and thorough security audits can avoid this.

Auditing phases, such as manual code reviews, automated tools, and adherence to best practices significantly reduce the risk of reentrancy attacks, arithmetic overflows, or DoS attacks.

By prioritizing smart contract security audits, developers and testers can enhance the robustness and reliability of their blockchain applications.

Kelechi Ugwu

Written by Kelechi Ugwu

Kelechi is a passionate and versatile Software Engineer and Technical Writer. He has a love for crafting innovative digital solutions and communicating complex technical concepts in a clear and engaging manner.