Smart contracts have been touted as one of the greatest advancements in business since the advent of the Internet. They provide a way for humans to conduct business without the need for a middleman, cutting out costs and removing chances for human error from the equation. Because smart contracts are essentially programs functioning on a blockchain, they have been developed to execute automatically once certain conditions are met, removing the need for a third party to oversee them.
Smart contracts can be exploited by malicious actors in a number of ways, which can lead to serious financial losses for those involved. In this blog post, we’ll explore the top 5 biggest vulnerabilities in smart contracts and what measures can be taken to mitigate these risks.
What are smart contracts?
A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. Proponents of smart contracts claim that many kinds of contractual clauses may be made partially or fully self-executing, self-enforcing, or both. Smart contracts aim to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting. Nowadays, most smart contracts are used to store or transfer financial assets of value and this makes them a primary target for hackers looking to make it big.
The Dangers of Smart Contracts: How They Can Be Exploited
Smart contracts are often hailed as the future of transactions, but there are dangers that come with using them. They have vulnerabilities that can be taken advantage of and this can often result in the loss of valuable digital assets.
Security holes in smart contracts can be due to issues with the code, like programming errors or negligence of the standard practices while programming or even misconception of the business logic of the contract.
What are the top 5 biggest vulnerabilities in smart contracts?
- Arithmetic Over / Under Flows
Overflow and underflow issues are a common problem in solidity code. This can lead to a significant difference between the calculation’s actual outcome and expected results. This can undermine the contract’s inherent logic and result in lost funds.
There are some limitations when it comes to overflow vulnerabilities in Solidity. While they will not generate an error in versions up to 0.8, they will in later versions.
- Front Running
Frontrunning is when someone takes advantage of the transparency of the blockchain to see what transactions are unconfirmed and then take them before they get confirmed. This can be done by monitoring the memory pool for unconfirmed transactions and paying higher fees to move them ahead of the others.
It is very easy to automate this process, that is why this is now a very common vulnerability. It also requires either a major refactoring or redesign to successfully resolve them.
A reentrancy attack is a type of malicious attack on a smart contract by using another contract. It exploits the vulnerabilities of another smart contract, usually to drain off its funds.
To carry out a reentrancy attack, one would typically work on a vulnerable smart contract, say Contract X. This might involve checking the balance, sending funds, and then updating the balance sheet.
The attacker contract, contract Y, repeatedly calls the victim contract, contract X. This could allow an attacker to repeat the same process over and over again until all of the funds are drained.
- Missing Parameter or Precondition Checks
In the world of programming, there are many mistakes that can be made. Often, these mistakes are simple and could easily be avoided with a little more attention or thought. For example, sometimes people don’t validate the arguments of a function or forget to check for an operation to be valid. This might include not checking address parameters for the zero address or not verifying that a user has sufficient token balance to execute a certain operation.
This type of error is usually the result of a sloppy design process. It is important to have a written specification of all functions, stating the parameters, pre-conditions, and operations to be performed. Following best practice design patterns, such as Checks Effects Interactions, can also help prevent this type of vulnerability.
- Simple logic error
All of the aforementioned vulnerabilities are specific to smart contracts and the way that they are programmed. Be that as it may, the most common type of issue are simple mistakes in the smart contracts logic.
These errors have severe implications in the functionality and security of the contract and are usually caused by specification misunderstandings, or simple typographical errors.
How can you secure your smart contract?
It is obvious that security should always be your number one concern, when it comes to your smart contract. While there are ways for a project to increase its security by internally auditing the code, keeping healthy code writing practices and also announcing bug bounties, these methods yield limited results. Since smart contracts constitute the main vital part of any blockchain project, investing in a smart contract audit is the way to go, to give yourself peace of mind. There are a large number of cybersecurity companies out there, so it can be difficult to choose the right one. Some of the most trusted audit companies out there include Certik, Cyberscope, Hacken, HashEx etc.
We have used this blog post to examine the top 5 smart contract vulnerabilities. However, what these have in common is that they can be easily discovered if the auditor fully understands the code base and has insight into the project’s intended functionality and contract specification. It is these kinds of problems that are the reason why smart contract audits take a long time, are not cheap, and require experienced auditors. That is why, you should always seek out the best quality of services to ensure that your smart contract is as secure as it gets.