A smart contract audit is an extensive examination and analysis of the code used to interact with the smart contract or blockchain. This process is carried out to identify bugs, problems, and security vulnerabilities in the code to suggest improvements and ways to fix the bugs. For the security of the entire ecosystem, it is necessary to check smart contracts by multiple parties since most contracts deal with financial assets.
Such examinations are complex because smart contracts often interact with each other and any integration with third-party systems can make the contract itself vulnerable. For this reason, analyses are often extended to other smart contracts involved in the interactions, including those that are being interacted with. Reviews usually include automated tests and manual code reviews.
Smart contracts often manage huge fund amounts, and a single mistake can lead to big losses. More specifically, users could lose all assets in that ecosystem. The auditors' recommendations are communicated in advance to the developers and their responses are recorded in the final report. For this reason, teams are interested in conducting an audit to gain user trust and increase the project’s credibility.
- Expert review: to avoid mistakes in smart contracts, auditors check the code itself several times
- Preventing security attacks: when creating a smart contract, errors may occur that the developer does not notice
- Improved security: security smart contract auditing guarantees product owners that the code is secure
- Continuous security assessment: during the smart contract audit, continuous security assessments are carried out and improvements are offered
- Analytical reports: an analytical report will contain a summary, vulnerability details, and mitigation advice
- It is not possible to guarantee that a project is 100% safe. Even if the project has KYC, it may not be secure due to fake identities.
- Financial complexity for small and medium-sized projects. An audit is an expensive matter, and for small projects such an expense would be liquidating.
Tips from an analyst
To help you recognize good audit companies, we list some reputable examples below:
- Hacken – their clients include Solana, VeChain, Gate.io, KuCoin, Huobi, 1inch and Avalanche. In addition to smart contract security auditing, they also provide KYC background checks
- CertiK – one of the biggest names in the smart contract auditing industry, they mainly focus on DeFi
- ChainSecurity – a Swiss blockchain security company, founded in 2018
- ConsenSys Diligence – it primarily focuses on building up the Ethereum ecosystem infrastructure - the founder of this company is Ethereum co-creator Joe Lubin
- PeckShield – this Chinese auditing and security company, founded in 2018, has audited several protocols, including Aave, EOS, Tron, OlympusDAO, and PancakeSwap
- Trail of Bits – this company, founded in 2012, has gained the trust of Yearn, LooksRare, Balancer, Acala, and Nervos protocols, along with hundreds of other crypto projects and mainstream giants such as Adobe, Microsoft, Stripe, Reddit, Zoom and Airbnb
Smart contracts have the potential to change the digital world by simplifying the authentication and execution of agreements between buyers and sellers. Smart contracts thus solve the trust problem in the digital world.
Despite their many advantages, smart contracts are prone to errors. If the developer makes a mistake, it can lead to executing a buggy contract. Therefore, a smart contract audit can be useful in understanding the blockchain and how smart contracts affect it.
Audits are important and necessary in the crypto world. In DeFi, it is necessary to choose mainly projects that have passed through the audit companies. Not every project has an audit, as audits are not the cheapest (prices start from thousands to tens of thousands USD). Smaller projects cannot afford them and sometimes falsify information to make it look like they have an audit. It is always better to double-check if the audit company even exists so that you do not lose your funds.