Web 3.0’s core features include privacy, decentralization, and a lack of government control. While this is beneficial to most network users, it also opens a window for hackers and attackers, as there is no official constitution guiding transactions on blockchain networks.
Protection of assets and funds is a huge responsibility for blockchain developers and cryptocurrency founders, however, some handle this aspect leniently.
Last year, cryptocurrency founders and businesses lost $3.3 billion to cybersecurity attacks. Between the first quarter of 2023 and 2024, a whopping 84.4% increase in crypto and DeFi asset theft was also noticed. Some notable cryptos affected included DMM Bitcoin and WazirX, which lost $305 million and $234.9 million, respectively.
This highlights the skyrocketing rates of attacks crypto and DeFi projects encounter and how they continue to be an imminent threat. Hence, more emphasis needs to be placed on the causes and prevention of these attacks. This article will reveal the best practices and common issues with smart contracts to reduce the incidents of these malicious attacks.
A smart contract is a program or application that operates on a blockchain network and contains all formal requirements and predetermined conditions that transactions must meet before approval. Consider it the digital form of the typical printed legal contracts binding two parties involved in any asset transaction.
It removes the need for an escrow service, agents, or lawyers to serve as third parties who ensure the success of a transaction.
Smart Contract Security includes measures taken by users, developers, and exchange applications to ensure a highly secured smart contract and protect it from vulnerabilities. These measures cut across all the development stages of a smart contract i.e. the design, development, testing, deployment, and maintenance stages.
Complexities of Code Auditing
Smart contract codes are more technical than traditional codes, making them more vulnerable to cyber-attacks. Code auditing, a process of vetting smart contract codes by professional developers to detect potential vulnerabilities, requires smart contracts and blockchain professional developers to audit the codes regularly. Some cryptocurrency startups fail to understand this and take code auditing less seriously.
2. Interactions Between Contracts
Smart contracts interact through calls and interact with non-contracts by sending Ether through message calls. Interaction with multiple contracts without a proper audit can cause vulnerabilities, and contracts can maliciously leverage these vulnerabilities.
3. Governance and Upgradability
Decentralization and immutability, the unique features of blockchain technology, cancel the need for government regulations. However, this continues to pose a problem. Once a contract is established, it is permanently added to transaction logs. However, some situations need subsequent modifications and updates after a mistake is made which eventually causes significant security issues.
4. Re-entry attacks
Smart contracts are prone to re-entrance vulnerabilities where an attacker repeatedly calls a function on smart contracts till it is fully drained. These attacks are usually catastrophic and can cause a full withdrawal of all funds in the contract.
5. Syntax errors
Errors can be logical or structural. It can be the missing character or letter that will lead to the malfunctioning of a smart contract and eventually carry out a wrong operation. Regular code audits can help to rule these out.
6. Frontrunning
This attack focuses on exploiting gaps existing in blockchain technology. Some end users predict and act on transactions that are yet to be registered by purchasing a large portion of tokens to alter the standard token price and eventually resell to others at a higher price.
7. Integer overflow and underflow
Smart Contracts have a minimum and maximum range of data integer sets they can execute, depending on their data type. In situations where integers run on the contract exceed the pre-established limit, it can create vulnerabilities for hackers and cause abnormal logic flows.
8. Denial of service (DoS) attacks
These are malicious trials to alter the normal functioning of a server or network by overloading the contracts with false requests that can trigger a crash. This results in a slow, unresponsive server and sometimes becomes inaccessible to end users.
Ensuring a safe and secured smart contract requires effort in all stages of its development and that is why these practices will be delved into according to the stages of development.
Basic Knowledge of Blockchain Nuances: Even the most proficient blockchain developers can falter if there’s a knowledge gap. Ethereum blockchain is ever-changing. New bugs and loopholes emerge every day. Staying updated with Solidity syntax and understanding the basic things like blocks, gas fees, and blockchain coding limits will go a long way in preventing drastic errors.
Consistency with project goals: Understanding a project’s goal and designing a clear, concise, and consistent logic is vital to developing a secured smart contract. Designing a logic shouldn’t be about imitating trending market solutions but should be focused on the project’s unique strengths and weaknesses. Other projects can be studied to get solutions that can be used to better the project’s design.
Simplicity and Modularity: A clear, concise, and straightforward logic prevents the risk of bugs and contributes to a highly secured smart contract. Complexity doesn’t necessarily mean superiority but more complications to deal with. Modularity, a process of dividing programs into singular functional components, helps to limit errors to just one section instead of the whole program. This helps with troubleshooting and comprehensive coding for developers.
An additional layer of fail-safe mechanism: Additional measures to ensure a first line of defense for cyberattacks cannot be overemphasized. Here are the major mechanisms to implement:
Upgradeability: Adding upgradeability features to programs would allow future fixing of bugs.
Decentralization: To minimize risks of successful attacks, it is advisable to have shared control of contracts that also require multiple e-signatures specifically for important transactions.
Time Lock: Highly important functions should be delayed for a specific period just in case anything needs to be changed.
The latest version of Solidity Usage: The latest version of Solidity has updated security fixes that will facilitate a more safe smart contract.
Utilizing well-tested libraries: Unvetted libraries can serve as a link to introducing vulnerabilities into smart contracts. Using vetted libraries like OpenZeppelin is advised.
Development security patterns: Commons attacks like the re-entrance attacks can be mitigated by adopting security patterns like the CEI (Checks-Effects-Interaction) pattern, emergency stop pattern, delayed withdrawal logic pattern, and rate limit pattern.
Gas usage optimization: Distinct data operations and data types use different gas fees, so knowing the optimal one to use is paramount. Practices like function and loop optimization, storage layout optimization, and variable packing help to achieve gas conservation.
Modifiers usage: Leverage code elements that can alter a function’s behavior, or enforce changes with functions. They can be used for authorization, improving readability and reusability.
Solidity coverage plugins, SuMo Trofu, and Mocha can be used for thorough testing of the smart contract. They can be used for testing smart contract’s execution, transaction cost, and mutation testing. Analysis tools like Solgraph, Slither, and MythX are recommended. They produce visual representations of contract dependency, security properties, potential vulnerabilities, and technical issues.
Here are some vital tips to follow when launching a smart contract:
Test Networks
Continuous Testing and Audits
Automated Deployment rounds
Time Lock Additions
Limit function permission
Verify Source Code
Emergency Stop Mechanism
This stage includes the continuous monitoring and updating of smart contracts. Here are some tips for the effective management of a deployed contract:
Leverage on bug bounty programs
Usage of real-time tracking systems
Staying updated with the latest news in the Solidity and Ethereum ecosystem.
Ensuring a secured smart contract means handling every step of its development ranging from the design stage to the deployment stage and maintenance stage carefully. Regular code audits are measures followed after the deployment of a contract to pick up minute errors that could create a vulnerability.
Smart contract audits pivot around manual code testing, automated vulnerability scanning, code testing, and reports of issues detected. A transparent, well-vetted blockchain expert versatile with the audit process should be used for these audits to receive adequate and accurate feedback.
What are the 4 major parts of a smart contract?
The 4 major parts of a smart contract are the contract address, state variables, functions, and events.
What are the top 5 smart contracts?
The top 5 smart contracts are Ethereum, Binance Smart Chain, Cardano, Solana, Polkadot, Avalanche, and Tezos.
What is the largest smart contract platform?
Ethereum is the largest smart contract platform.
What is the market size of smart contracts?
The global market size for smart contracts was $1.71 billion in 2023 and is projected to grow to $12.55 billion by 2032 at a CAGR of 24.7%.
Is a smart contract an algorithm?
No. Smart contracts utilize cryptographic techniques to ensure the security of each transaction.
Is Solidity a smart contract?
No. Solidity is a programming language for developing smart contracts.