Smart Contract Audit

A smart contract audit is a detailed analysis conducted by an auditor on smart contracts to identify any bugs, vulnerabilities, or errors. The primary purpose of this audit is to enhance security, privacy, efficiency, and reliability within the protocol's network. These audits are commonly conducted in the DeFi (Decentralized Finance) ecosystem.

Auditors perform it to review the protocol's code for inefficiencies and vulnerabilities. They help to secure the network against potential exploits and scams that could lead to the loss of large sums of money. Additionally, these audits bolster the security of existing smart contracts. However, the cost of a smart contract audit may vary across different firms.

A smart contract audit provides an extensive analysis of blockchain protocols to identify errors or bugs within the network and help mitigate vulnerabilities within the code. If these errors are ignored, they can lead to the loss of funds that users cannot retrieve. For example, in 2022, the total amount stolen via crypto scams was $3.8 billion.

Although there are various smart contract audit companies, the process is generally similar. During the audit, cybersecurity experts review the code, infrastructure, and security system to identify any bugs. After various stages of testing, the auditor provides a detailed final audit report along with recommended solutions. This report includes identified vulnerabilities within the code and potential future risks.

Opting for it becomes crucial in several instances. For example, firms should run an audit during the launch of a new product to ensure the DeFi product is free from malicious elements. Similarly, before listing on a crypto exchange, firms must perform an audit to detect any vulnerabilities. Other projects that need audits include decentralized exchanges, DeFi platforms, gaming platforms, crypto wallets, and NFT (non-fungible token) marketplaces. However, the cost varies depending on the project.

The average cost of an audit ranges between $5,000 and $15,000, depending on the complexity of the code and the type of project. Additionally, the reputation of the audit firm can influence the cost. Most auditors take one to 14 days to complete the process, though for larger projects, it may extend to a month. The duration typically depends on the project's complexity and use cases.

Let us look at various methods to prepare for a smart contract audit:

• Choosing an Auditor: One of the foremost preparations is selecting the auditor. Depending on the budget, the firm can choose companies that fit their cost requirements. However, the primary goal should be to obtain high-quality audits that enhance the system's efficiency. Some providers include QuillAudits, Hacken, and others.

During this process, firms must understand the associated compliance and standards required for auditing. Some relevant standards are ISO 27001, the General Data Protection Regulation (GDPR), the NIST Cybersecurity Framework, and the Payment Card Industry Data Security Standard (PCI DSS).

• Documentation: It is essential to gather all relevant data in one place. Documentation should create a flowchart or schedule briefly describing the system's functions. It should also include features, protocols used, and the token mining and distribution process. This makes it easier for the auditor to understand the system, reducing the time consumed during the process.
• ReadMe Files: The next step is to organize the ReadMe files, which serve as the auditor's initial guide. These files should explain the code, application, and project functions clearly. It is essential to create space and delete unnecessary ReadMe files, helping to create a good impression on the auditor.
• Applying Clean Code: Clean code refers to a standard format applied throughout the entire codebase. This involves using a consistent style, stable libraries, valuable comments, and removing redundant code blocks. This step aims to eliminate any irregularities in the code.
• Perform Run Tests Firms should perform run tests and analyses to detect any flaws in the code. This ensures that auditors spend less time on minor errors and can focus on identifying significant vulnerabilities.
• Freeze the Code: Firms must complete the code and any remaining updates before sending it for audit. If incomplete code is audited while still being updated, new bugs may be introduced. Therefore, it is advisable to finalize and freeze the code before submitting it for audit.

Once the code is ready for audit, the auditor initiates the process. This can be done either manually or via automated software. Let us look at the steps involved:

• Data Collection: The first step in the process is to enforce a code freeze and provide specific details to the auditor. This includes a whitepaper, infrastructure, architecture, and related documents. These documents help the auditor understand the code and define the scope of the audit.
• Manual Review: After gathering data, the auditor performs a manual review of the smart contract. During this review, the auditor sets specific goals to ascertain the project's functionality. This step verifies whether each detail mentioned in the documentation is implemented correctly, ensures no unspecified behavior exists, and checks for any contract violations.

Additionally, the manual review detects specific vulnerabilities, such as reentrancy attacks, overflows, denial of service, front running, bad randomness, unchecked return values, time manipulation, or short address attacks. Any oversight during this step can create opportunities for malicious attacks.

• Testing: The next step involves testing at different levels, including manual and functional testing. In manual testing, the auditor checks each code segment manually. Functional testing involves using various parameters to test the functions and their gas limits. Auditors employ various tools like Slither, Mythril, Manticore, Solidity Coverage, Oyente, and Solgraph. These tools help detect bugs within the network using a static analysis framework.
• Initial Report: After running tests, reviews, and checks, the auditor publishes an initial report. This report contains comprehensive details of the errors and bugs found, along with suggestions for addressing any identified vulnerabilities.
• Final Report: Following the initial report, the client can consider and implement the suggested changes. After these fixes are made, the auditor publishes a final report that includes the initial audit findings and confirms that the issues have been addressed.

Let us look at the examples to understand the concept in a better manner:

Example #1 

Suppose Jitt Ltd is a decentralized platform that announces the launch of its cryptocurrency "Jasz." They have prepared the whitepaper and its architecture with their team members. However, they felt the need to have an audit of their code. The developers were given one month to complete coding-related tasks and updates. Additionally, documents were organized, and unnecessary files were deleted to facilitate easy access for the auditor. After a few weeks, the audit began and lasted ten days.

At a later stage, the auditor provided an audit report identifying bugs in the project's core system. If addressed, these bugs could continue the trade of the Jasz coin. Consequently, the team reworked the suggestions and presented the revised code. After the fixes, auditors conducted another audit and presented a final audit report to Jitt Ltd.

Example #2

According to a news article, the stablecoin protocol Unitas implemented its testnet on July 17, 2023. This testnet acts as a parallel network where solutions can be tested without risking the main blockchain. Participation is open after completing this analysis conducted by Sherlock, a leading smart contract coverage protocol and audit marketplace built on the Ethereum blockchain.

These audits have many perks for the security domain. However, there are some downsides to it. Let us look at them: