Ways to Ensure Smart Contract Security

A smart contract is an important crypto technology and a key element of the overall blockchain architecture. With its use cases and applications spread across industries such as finance and supply chain management, IoT networks, art and music, smart contracts’ role in the crypto world can’t be overemphasized. However, with ever-growing threats in the tech space, smart contracts are becoming more and more vulnerable. Smart contract codes are often transparent, which makes them vulnerable to security attacks and other vulnerabilities. Malicious agents can exploit these vulnerabilities to compromise customer data and cause substantial revenue loss. It is estimated that the total value lost or stolen as a result of security vulnerabilities in smart contracts is over $1 billion. This includes high-profile cases such as the DAO hack, in which 3.6M ETH was stolen (worth over $1 billion at current prices), the Parity multi-sig wallet hack, which resulted in $30 million being lost to hackers, and the Parity frozen wallet issue, in which over $300 million in ETH was permanently locked. These figures may vary, but it is clear that smart contract security is an important issue that needs to be addressed.

Given the chances of losses and security breaches, it is crucial for developers to prioritize building secure, reliable, and resilient smart contracts. This will help protect against vulnerabilities and reduce the risk of incidents like those mentioned above. It is, therefore, important to fully understand smart contract security, how it works, and the available key tools.

This article will discuss what is a smart contract, smart contract security, its functioning and the important issues that are associated with it and various ways to ensure smart contract security.

• What is a smart contract?
• What is smart contract security?
• Prevailing risks in smart contracts’ security
• Smart contract security considerations to take into account during the smart contract development life cycle
• Smart contract security audit and its importance
• How to perform a smart contract audit?
• Best practices for smart contract security
• How can LeewayHertz help in ensuring smart contract security?

What is a smart contract?

Smart contracts are self-executing contracts where the terms and agreements between seller and buyer are directly written in code. The code and all the agreements within it are available across a distributed, decentralized blockchain network where the code controls execution and transactions. Smart contracts allow trusted transactions and agreements between disparate, anonymous parties to be completed without needing a central authority, legal structure, or another enforcement mechanism.

Developers can create a variety of tokens and apps using smart contracts. These contracts can be used for everything, from financial tools to logistics and gaming experiences. They are stored on a blockchain, just like any other cryptocurrency transaction. Although there are exceptions, smart contract logic can’t generally be reversed or modified once they have been added to the blockchain.

Smart contract-powered apps are often referred to as “decentralized applications” or “dApps,” and they include decentralized finance (DeFi) tech that aims to transform the banking industry. DeFi allows cryptocurrency holders to perform complex financial transactions, including loans, savings, and insurance, without any bank or financial institutions taking a cut. They can also be used from any location in the world.

The working mechanism of smart contracts

A smart contract, or a crypto contract, is a computer program that executes according to pre-defined rules and automatically controls the transfer of digital assets between parties under certain conditions. Smart contract programs run as their creators program them and are enforced by code. Anyone can create and deploy a smart contract on a blockchain. At the same time, it is accessible to all interested parties maintaining transparency and allowing them to see a smart contract’s logic when receiving digital assets.

Some of the features of smart contracts are as follows:

• You can use different programming languages like Solidity, Web Assembly and Michelson to create a smart contract.
• Every network computer (or node) stores a copy of all existing smart contracts, their current state, and transaction information.
• Smart contracts receive funds from users, and the nodes in the network execute the smart contract code to reach a consensus on the outcome. Additionally, smart contracts run securely without a central authority, even when users make complex financial transactions with unknown entities.
• You will need to pay “gas” fees for executing a smart contract which helps keep the network running.
• Once deployed to a blockchain, smart contracts cannot be modified, even by the creator, ensuring that they are not censored or shut down. However, there are exceptions to this rule.

What is smart contract security?

Smart contract security refers to the security principles and practices that are used by developers, exchanges and users in the creation and interaction with smart contracts. The blockchain industry and smart contract-based apps are a highly dynamic sector that has earned billions of dollars. To make money, malicious agents look for ways to exploit smart contract vulnerabilities resulting in smart contracts posing different security risks. So, you must consider the design challenges of smart contract security in addition to the operational difficulties associated with smart contract deployment.

There are different security tools in use to prevent smart contract security theft depending on the type and purpose of the smart contracts. Smart contract security also includes Contracts of Applied Logic or ALCs that are developed on a decentralized network.

However, we must know the pain points of smart contract security.

Prevailing risks in smart contracts’ security

The list of security threats is the most important feature of any smart contract security guide. While providing smart contract security, you must be aware of all the possible attacks. Here we have enlisted some of the top risks to smart contract security.

Oracle manipulation

Smart contract security could be affected by manipulating external data providers and possible solutions to security problems with Oracles. For smart contract use, Oracles collect off-chain information to send on-chain. Using oracles, you can create smart contracts that interact with off-chain systems like capital markets which greatly expands their potential. However, incorrect inputs can affect smart contracts if oracles send out false information to the blockchain. This is known as the “oracle issue.” This is why it is necessary to ensure that information from a blockchain oracle is accurate, current, and timely.

Reentrancy attack

When exploiters call functions repeatedly before the end of the first invocation, it causes a reentrancy attack. To withdraw balances multiple times, malicious agents can use the “reentrancy bug.” Calling outside contracts can pose a serious threat to your data. They could take control of the flow and make changes that you weren’t expecting. These bugs come in many forms and were responsible for the DAO’s collapse. The DAO was hacked on June 17th, 2016, and 3.6 million Ether were stolen using the first reentrancy attempt. The hack was reverted to the Ethereum Foundation by a critical update which ultimately led Ethereum to be forked into Ethereum Classic.

Frontrunning

Frontrunning attacks implicate malicious use of the transaction processing approach where robots can analyze smart contract instructions and functions, although they have not been used before to extract potential gains or cut off funds. In this scenario, not only do malicious users observe a swap transaction before it is finalized, but also they can use a bot or miner to place their own transaction right before the pending one. Alongside, bad actors might change a higher processing fee to process their transactions first, which could prevent other large transactions from being processed.

Timestamp dependence

Timestamp dependence vulnerability occurs when a smart contract uses the block.timestamp function to perform critical logic within a smart contract. This can include actions like sending ETH or using the function to generate a random number. This function can be easily modified since it contains the transaction code of the smart contract.

Insecure arithmetic

The smart contract also faces a serious security risk from integer underflows and overflows. The Ethereum Virtual Machine, or EVM, uses fixed-size data to store all types of integers. If an integer variable can only store numbers between 0 and 255, there would be overflow or underflow depending upon the input value. Insecure arithmetic could also lead to vulnerabilities that attackers can use to create new logic flows.

Gas grief

Grief resolution is one of the most notable features of smart contract security. These types of attacks are often associated with poor-faith actors within a smart contracts ecosystem. Gas griefing attacks occur when a user sends enough gas to execute the target smart contracts but not its sub-calls. This can lead to uncontrolled behavior, which could harm the business logic.

Denial of service

Smart contract security issues that include denial-of-service attacks and unexpected reverts are common. An attacker can win any auction using a smart contract with a fallback function that reverses any payment. If the refund is unsuccessful, the smart contract will revert to the original leader. A malicious bidder could become the leader while ensuring that all refunds to their addresses never fail. They can thus prevent others from calling the bid () function and remain the leader forever.

Force-feeding

Force-feeding is another security concern that smart contracts must be aware of. For the manipulation of balance checks, it works by forcing Ether transfer to smart contracts. Avoid coding an invariant, which checks the balance of a contract. An attacker can send ether to any account, and it is impossible to stop. The attacker can do this by creating a contract, funding it with 1 Wei, and invoking a necessary function that does not allow for code to be invoked, so it is impossible to prevent the attack. Block reward is sent to the address provided by the miner, which can be any address.

The next important question that pops us here is: How can such security hacks be prevented?

Smart contract security considerations to take into account during the smart contract development life cycle

Attackers often exploit multiple weaknesses ignored during the software development life cycle. This is the sequence of steps involved in releasing new code. We believe security incidents would be far less common if better protocols and best practices existed during the smart contract development life cycle.

Before diving into smart contract security considerations, you must understand the development phases of a secure software development life cycle. These phases can be described as the following:

• Design: Developers describe the system’s features and operations. They also include important benchmarks.
• Development: Developers create the code as per the design.
• Testing and review: Developers gather all modules in a testing environment to evaluate their correctness, scale, or other factors.
• Deployment: Developers deploy the modules in the production environment.
• Maintain: Developers evaluate and modify the system to ensure it performs its intended functions.

So, the question is, how should we consider smart contract security during each of these phases?

Design phase

In this phase, security design and threat modeling must be considered. It has been a practice that developers may be tempted to concentrate on the intended use of smart contracts or protocols, but this can lead to blind spots that attackers could find easy to exploit. So, it is important to establish an explicit process of prioritizing and identifying potential threats to a system at the beginning of the development cycle. Smart contract developers must identify security controls that they will implement in development and any threats that need to be monitored during testing, audits, or monitoring. All security assumptions should be made clear and stated in the design phase.

To achieve this, follow known threat modeling practices. Engaging security consultants early in the design phase is a good idea if the team does not have security expertise. When designing the system, adopt an “attacker” mindset and assume that any machines, individuals, or services could reasonably be compromised.

Development phase

Developers can improve protocols by updating and managing governance. This allows them to add new features, fix security problems, and address changing conditions. However, this can be a security risk if the ability to upgrade is not properly controlled. At the same time, access control can be implemented to restrict special functions, such as setting parameters and upgrading contracts, that perform administrative tasks. These special functions are restricted to smart contracts and privileged accounts. The principle of least privilege dictates that actors should have only the minimum access.

To solve this, create a multi-signature wallet that allows for transparent administration or changes for the community. To ensure correctness and rollback in the case of a governance attack, all changes should be subject to a thorough review. Securely store privileged keys in self-custodial wallets and secure custodial service.

Alongside, use existing smart contract standards whenever possible and assess the security assumptions that protocol integrations might require. Security risks can be reduced by using existing, battle-tested, community-audited standards and implementations. You can assess the security risks associated with protocol integrations and develop security checks to prevent attacks on external components like oracle manipulation. For this, trusted contract libraries and interfaces that have been security audited should be imported. After all, the point of crypto/web3 is open source, re-usability, and compatibility. Document your contract dependencies and their versions and minimize your code footprint wherever possible. Make sure you consider potential integration risks when calling external protocols using official interfaces. You should monitor security disclosures and updates to contracts that you have reused.

Testing and review phase

It is important to create assumptions about the codebase’s expected behavior to ensure that threat models are being addressed and that external auditors and users understand the developers’ intentions. A test suite for the code can be used to verify or disprove development assumptions. It also encourages deeper thought about threat models. The test suite should contain tests for mechanism designs, which will check tokenomics under extreme market conditions. It also needs to include unit testing and integration.

Make sure to create clear and comprehensive documentation about the code. Then, set up an easy-to-use, fast-running test suite. For deeper experimentation, create test environments via mainnet simulation or testnets whenever possible. Use a known testing framework and security checks, such as Truffle. There are many different methods of testing, including property-checking, fuzzing, and formal verification. You should document your code extensively and add comments to describe side effects, parameters and return values. Also, produce live documentation using documentation generation tools alongside high-level design explanations.

Internal code review for bug detection followed by an external audit should occur before production deployment.

Deployment and maintenance phase

Programs that encourage participation from the community in security improvements to open-source codebases should be created. This can be done by creating bug bounty programs. You can also encourage the community’s development of protocol-monitoring detection robots. For this, use bug bounty platforms to fund bounty systems with severity disclose vulnerabilities. Development teams can encourage their protocols’ communities to take advantage of both traditional and web3-native approaches to incentivizing bug bounties and for the participants to potentially profit by enhancing security in a win/win for all.

Overall, smart contract security considerations should be integral to the smart contract development life cycle and not be considered an add-on.

Smart contract security audit and its importance

A smart contract security audit examines the smart contracts in detail to protect the money invested through them. As all transactions on the blockchain are irreversible, funds cannot be recovered once they are taken. The smart contract audit examines the code underpinning the contract’s terms. This allows developers to spot flaws and vulnerabilities quickly before deploying smart contracts.

Smart contract auditing has become more important in recent years because of the following:

• It helps avoid errors that may cost you dearly: It is important to audit your code early in the development lifecycle. This will help you avoid potential fatal flaws later on.
• Expert review: Security auditors with experience double-check your code manually to eliminate any false results.
• Find security holes: Security attacks can be prevented by keeping an eye out for security holes as you code and alter code.
• Enhanced security: The smart contract security audit assures decentralized product owners that their code is safe.
• Continuous security assessment: Smart contract auditing allows you to perform ongoing security assessments. This will help improve your development environment.
• Analytical reports: Get an executive summary, vulnerability details, and mitigation advice in a vulnerability report.

How to perform a smart contract audit?

Smart contract audit checks for vulnerabilities specific to each smart contract’s business logic. It also checks for conformance to the Solidity code style guide. Finally, it verifies that smart contracts are free from access control and logical concerns. The standards for smart contract security audits differ from one project to the next. As discussed below, two ways to audit smart contracts are manually and automatically.

Manual auditing

Manual auditing involves a team of experts/auditors reviewing each line of code to identify compilation and re-entry issues. This can help detect other security flaws that are often overlooked, like poor encryption practices. This method is considered the most complete and accurate because it detects hidden defects, such as design problems, rather than code errors.

Automated auditing

The automated smart contract auditing method uses bug-detection software to locate errors. Automated auditing is preferred by projects that have a faster time to market. It helps identify vulnerabilities faster. However, automated software can not understand contexts and misses vulnerabilities while examining code.

The process of smart contract audit

Smart contract audit follows a standard procedure but may vary between smart contract auditors. Here is an example of a typical procedure:

Code design models collection

Auditors collect the code specifications and inspect the architecture to guarantee third-party smart contract integration. Auditors can then understand the scope of the project and its goals.

Run unit tests

Auditors then test each smart contract function by using automated and manual tools to ensure that the unit test cases contain the entire code of the smart contract.

Choose your preferable auditing method

Auditors inspect smart contracts with no software because a manual audit is more efficient than an automated audit. This approach allows attacks such as front-running to be detected quickly.

Prepare the initial report

Auditors will then draft any code flaws found and give feedback to the project team. Smart contract service providers often have a team that can fix any bug.

Publication of the final audit report

Auditors publish the final report after the bugs have been fixed. This includes any actions the project team and external experts took to address the issues.

Best practices for smart contract security

To begin with, smart contract auditing is required for various initiatives, including token contracts or crowd sales. DeFi projects, NFT marketplaces, and any other blockchain projects that leverage smart contracts can benefit from smart contract auditing. Essentially, smart contract auditing can be a huge benefit to any project, which includes identifying and preventing systemic flaws, building trust between investors and end-users alike and risk assessment and mitigation. The benefits of smart contract development are numerous. However, it is important that projects follow industry best practices. These include, but are not limited to:

Regular audits and pentesting

Even if the system seems flawless, it is essential to perform audits and pentesting frequently. Hackers can find ways to exploit security flaws or vulnerabilities even when they don’t seem to exist. It is possible to identify potential security flaws in your system by performing a periodic audit. This will allow you to have enough time to address them before hackers exploit them.

These are the steps to take to conduct a smart contract audit:

• Use a SAST tool to perform static analysis on your code in order to find style inconsistencies and vulnerable code.
• Securely analyze your smart contract with trusted tools such as Mythril and MynthX.
• You can test for every vulnerability mentioned in the SWC register.
• If you don’t have a security team with the right experience, organize a bug bounty program.
• Create a detailed report highlighting vulnerabilities found in your system. Also, make recommendations on how to fix them.

Follow the blockchain security checklist

It is a good idea to use the well-researched, practical checklist to ensure the security of your blockchain-based apps. A good checklist for blockchain security includes the following:

• Mandate multifactor authentication.
• Security incident and event management (SIEM) can be leveraged.
• Policies that determine the level of access required for the right purpose.
• To access blockchain solutions, IAM must be enforced.

Run an automatic security scanner

An automated security scanner is a tool that can assist you in a security analysis of smart contracts. This scanner can identify security flaws in your code and help you avoid them. This open-source security scanner can be used for Ethereum smart contracts, which Ethereum Foundation supports. This type of scanner can identify the following aspects:

• Details about vulnerability
• Affected components
• Steps to fix/suggested fixes
• Vulnerability impact, potential monetary loss, severity, CVSS score.

How can LeewayHertz help in ensuring smart contract security?

LeewayHertz can ensure your smart contract’s security in the following ways:

1. Through its smart contract auditing service
2. Implementing a smart contract monitoring tool

Here are the explanations for the two:

Smart contract auditing service

You can improve the effectiveness of your smart contract by using LeewayHertz’s smart contract audit services. Their audits include both automated and manual testing to identify and address any vulnerabilities or weaknesses in your source code. With such thorough inspection, you can protect your smart contract from potential issues. The following image depicts the auditing process of LeewayHertz:

• Specification assembling and client consultation –  Through smart contract audit services, first, your projects’ priority is assessed. The process gathers information about your code’s specifications, design, build process, and architecture to understand its intended functionality fully.

• Automated review and testing – To thoroughly examine the potential risks in your source code, experts use advanced tools such as MythX, Certik’s SkyHarbor, and Quill Hash. The analysis techniques cover various types of vulnerabilities, such as syntax errors, security loopholes, and bugs.

• Manual analysis and testing – After automated testing, experts inspect if the smart contract shows any unanticipated behavior and other security vulnerabilities like overflows, denial of service, reentrance, front running, time manipulation, malicious libraries and logical flaws.

• Functional testing – In this phase, the Quality Assurance team and developers come together to manually test the functions and methods of the smart contract with various parameters and conditions to check for failures. They also verify that each function operates as intended and that the smart contract’s features and business logic have been implemented correctly.

• Initial audit report submission – Upon completing the vulnerability inspection of the smart contract, the developers will deliver an initial comprehensive audit report outlining all findings and providing recommendations for addressing any identified issues.

• Issue fixing by developers – After the initial audit report is submitted, the developers will address any detected issues or bugs, either by the client or by the audit team, as needed.

• Inspecting the rectified code – Upon making the necessary changes to the code, the team reviews the revised code and runs a series of tests to ensure that the code quality has improved and all issues have been successfully resolved.

• Final report documentation and submission – In the final step, all pertinent information from the smart contract audit is documented and a comprehensive, customized, and transparent report is provided to the client.

Smart contract monitoring tool

LeewayHertz’s smart contract monitor is a white-label tool that gives your network users and developers a single, web-based platform to view details about smart contracts and their transactions. It sends real-time alerts on various events. Additionally, it helps protect contracts by detecting and alerting them about suspicious activity or errors. The tool triggers alerts in the following circumstances:

• Successful transactions
• Failed transactions
• Token transfers
• State change
• In case the transaction matches the value
• Any drop in the balance

Endnote

Smart contracts have been plagued by security incidents that have caused significant financial losses to them. Since smart contract security is a complex issue, it appears that developers need to make smart contracts more secure to address vulnerabilities. An in-depth overview of smart contract security threats is a good starting point to identify the severity of the situation. It is crucial to be concerned about smart contract security as smart contracts are essential for driving the future of the web3 revolution. You can use trusted tools and follow certain simple best practices to protect smart contracts. It is also helpful to seek the assistance of a third party for smart contract auditing. By taking the necessary precautions and working with experienced professionals to ensure the security of their smart contracts, organizations can protect their assets and build trust with their users.

Don’t let vulnerabilities compromise the functionality of your smart contract; get a professional audit today. Work with the LeewayHertz team of smart contract auditors to ensure the success of your smart contract!