Understand The Blockchain Smart Contracts And Security

As blockchain technology continues to evolve, so does the way we use it. Smart contracts are one example of how the blockchain is being used to create more efficient systems.

If you’ve heard the term but don’t really know what they are, smart contracts are basically computer programs that run on the blockchain. They automatically execute when certain conditions are met.

This article will discuss smart contracts, how they work, and the potential vulnerabilities of using them. Additionally, we’ll explore the importance of engineers in the blockchain and the role of smart contract auditors.

Let’s get started and dive deep into the world of blockchain smart contracts and security!

What Are Smart Contracts?

Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into code.

The idea behind smart contracts is that transactions should be transparent, secure, and efficient. Smart contracts are created on a blockchain platform, meaning they’re hosted on a network of computers rather than a single server. This makes them difficult to hack and keeps all information about the contract publicly accessible.

Once a smart contract is created, it can be automatically executed by the blockchain platform it’s built on. This eliminates third-party intermediaries like lawyers or notaries and reduces transaction costs.

Plus, since blockchains are decentralized networks, there’s no risk of one party going bankrupt and preventing the completion of the contract.

How Do Smart Contracts Interact in the Blockchain?

There are a couple of different ways that smart contracts can interact on the blockchain. The most common way is for the smart contract to be deployed to the blockchain, and then other decentralized applications (DApps) can interact with it.

For example, if you have a smart contract that allows people to buy and sell tokens, another DApp could use your smart contract to enable users to buy and sell those same tokens.

Another way that smart contracts can interact with each other is through something called an Ethereum Virtual Machine (EVM). This is basically a network of all the different Ethereum-based blockchains, where each blockchain is running its own version of the Ethereum software client.

This allows different blockchains to communicate with each other and allows for the creation of decentralized exchanges (DEX), where different tokens can be traded between platforms on a Peer to Peer (P2P) way.

What Are the Vulnerabilities of Smart Contracts?

Smart contracts are usually lauded for their security and immutability. However, some potential vulnerabilities should be considered when developing or using smart contracts.

Let’s take a look at some of the most common vulnerabilities:

1. Reentrancy Attacks

This type of attack occurs when a malicious actor calls a function multiple times while still executing. This can allow the actor to access or change data they should not have access to. For example, an attacker could call a function to withdraw money from a bank account multiple times, potentially draining the account.

2. Transaction Tampering

This type of attack occurs when a hacker alters the details of a transaction that has been previously approved. This could allow the hacker to divert funds to another account or even reverse a transaction.

However, it’s important to note that these attacks are not always successful. Smart contracts are often open-source, allowing for community scrutiny and identifying potential vulnerabilities.

Additionally, blockchain platforms often have security features that help protect against these attacks, ensuring that smart contracts are safe and secure.

3. Code Injection

Code injection is a type of attack where malicious code is inserted into a program to execute unauthorized actions. This can allow an attacker to gain access to sensitive data or take over the contract. Attacks like these have been successful through multiple strategies, from malicious links to corrupted websites, all shared through social engineering tactics. The injection attack is complicated to detect by both the user and legacy security products. Injection attacks against blockchain systems on both public and private networks, like Ethereum and Hyperledger, have impacted hundreds of millions of dollars in transactions, wallets, and investments over the past few years.

4. Denial of Service (DoS)

A DoS attack is a type of attack that attempts to overwhelm a system with requests so that it can no longer function. This can disable a smart contract or prevent it from being used.

5. ERC20 Token Vulnerabilities

ERC20 tokens are a type of cryptocurrency based on the Ethereum blockchain. However, several vulnerabilities have recently been found in ERC20 tokens, such as the Parity wallet hack.

These hacks highlight the importance of security when creating or using ERC20 tokens. It is essential to ensure that your tokens are safe and secure.

Why Are Security Engineers Important in the Blockchain?

Blockchain is a distributed database that allows for secure, transparent, and tamper-proof transactions. Security engineers play a vital role in developing and maintaining blockchain systems, as they are responsible for keeping the network safe from attacks and ensuring that data is appropriately secured.

Without security engineers, blockchain would be vulnerable to exploits and malicious actors. For example, if no security engineers were working on blockchain, someone could easily launch a 51% attack and take control of the network.

If there were no security measures in place, criminals could use blockchain to launder money or conduct other illegal activities anonymously. Security engineering is, therefore, essential for the proper functioning of blockchain.

Let’s take a look at the critical roles of security engineers in the blockchain ecosystem:

1. Secure Blockchain Platforms

Security engineers are responsible for developing and maintaining the security of blockchain platforms. They work to identify and fix vulnerabilities in the code and ensure that the platform is resistant to attack.

2. Identify and Fix Vulnerabilities

Blockchain platforms are always under threat of attack, as hackers are constantly looking for new ways to exploit them. Security engineers work to identify and fix these vulnerabilities, keeping the platform safe from any potential attack.

3. Develop Blockchain Applications

Security engineers are also responsible for developing safe and secure blockchain applications. They work to ensure that the code is appropriately protected and that the application is resistant to attack.

4. Manage Security Protocols

Security engineers are responsible for developing and implementing security protocols for blockchain applications. They work to ensure that the applications are safe and secure from attack and that user data is appropriately protected.

5. Ensure Authorized and Authenticated Transactions

One of the critical functions of security engineers is to ensure that authorized, and authenticated transactions take place on the blockchain. They work to ensure that only legitimate transactions are processed and that user data is appropriately protected.

This helps to stop money laundering and other illegal activities from taking place on the blockchain. Also, it allows businesses to trust the blockchain with their sensitive data.

Who Are the Smart Contract Auditors? What Do They Do?

Smart contract auditors are companies who review smart contracts for security vulnerabilities. They look for things like coding errors, potential exploits, and ways to improve the overall security of the contract.

Most auditors will typically check for common issues like coding errors, incorrect variable types, and unintended interactions with other contracts. Some of the smart contract auditors are Certik, Chainsulting, OpenZeppelin Defender, and Binance Accelerator Fund.

Let’s take a deep look at some of the critical responsibilities of smart contract auditors:

1. Evaluate Code Quality (Code Analysis)

When it comes to smart contracts, code quality is of the utmost importance. Auditors will evaluate the code for things like readability, formatting, and overall structure. They’ll also look for potential coding errors and ways to improve the overall quality of the code.

If the code is not up to par, it could lead to security vulnerabilities down the road. As such, auditors need to identify and report any coding issues they find.

There are few tools out there that are able to review some static vs dynamic code:

• Mythril: Security analysis tool for EVM bytecode. Supports smart contracts built for Ethereum, Hedera, Quorum, Vechain, Roostock, Tron and other EVM-compatible blockchains.
• Echidna: Echidna is a weird creature that eats bugs and is highly electrosensitive (with apologies to Jacob Stanley)
• MythX™: With MythX, you get increased scalability and performance, continual improvements to our security analysis engines, and higher vulnerability detection than locally-run security tools.
• Slither: Slither is a Solidity static analysis framework written in Python 3. It runs a suite of vulnerability detectors, prints visual information about contract details, and provides an API to easily write custom analyses.
• Octopus: Security Analysis tool for WebAssembly module (wasm) and Blockchain Smart Contracts (BTC/ETH/NEO/EOS)

ref: https://lightrains.com/blogs/solidity-static-analysis-tools/

2. Identify Potential Vulnerabilities

You might have heard the phrase “attack surface area.” This is simply a technical term used to describe how accessible a system is to potential attackers. The greater the attack surface area, the more vulnerable a system is to attack.

Auditors will identify and document any potential vulnerabilities in the code. They’ll also provide suggestions for how to fix these issues. By identifying and fixing vulnerabilities early on, you can help reduce the risk of a successful attack later on.

3. Assess Transaction Security

If you’re going to be doing business on the blockchain, you need to know that your transactions are safe and secure. That’s where auditors come in. They’ll assess the security of the transaction process and make sure that it meets all required standards.

They’ll also look for ways to improve the security of the transaction process. This could include implementing more robust security protocols or using more secure encryption methods.

4. Check for Coding Errors

One of the most common types of vulnerabilities in smart contracts is coding errors. These are simple mistakes in the code that attackers can exploit.

Auditors will look for coding errors and report them to the developers. Finding and fixing these errors early on can help reduce the risk of a successful attack.

5. Review Contract Design

This is another crucial task for auditors. They’ll review the contract design to ensure that it is safe and secure. They’ll also look for ways to improve the design of the contract.

A poorly designed contract could lead to security vulnerabilities. Auditors can help avoid any issues by reviewing the design of the contract and making suggestions for improvement.

What Is the Future of Smart Contracts in Blockchain?

The future of smart contracts in blockchain looks exciting. With the advent of blockchain technology, smart contracts have the potential to revolutionize the way we do business.

Smart contracts can automate tasks, remove intermediaries and reduce costs. They can also help to speed up transactions and make them more secure.

Blockchain is still a relatively new technology, and it will take time for organizations to understand and embrace its potential fully. However, several leading companies are already experimenting with smart contracts and blockchain technology.

As the technology continues to evolve, we can expect to see even more widespread adoption of smart contracts and the emerging technology of blockchain.

Conclusion

When it comes to blockchain technology, smart contracts are the foundation on which everything else is built. They provide a way for two or more parties to interact without a third party. This makes them ideal for use in situations where trust is an issue. However, because they are run on blockchains, they are also transparent and immutable, which makes them ideal for use in business transactions.

Subscribe on email to see more blockchain content!