Today, several decentralised finance platforms and crypto networks are run almost entirely by smart contracts. This alleviates the need for intermediaries or central governing authorities. A smart contract is a self-executing code that will carry out a specific action once its terms and conditions are met.
These smart contracts are nothing but lines of code written by project developers. They can contain bugs or be written with malicious intent, which could lead to potential losses. In fact, most crypto hacks, attacks and scams these days result from smart contract bugs. This is where smart contract audits come into the picture and help safeguard the crypto community. Tag along as we tell you more about smart contract audits, how they work, and their many advantages.
What are smart contract audits?
A smart contract audit is nothing but someone — a person or agency — checking your contract code for errors or loopholes that bad actors could exploit. It is the DeFi equivalent of running a contract by your lawyer to ensure that no line or phrase could be twisted later to get out of the contract.
Instead of a one-time errand, smart contract audits are usually a 2 or 3-step process. The team that develops the smart contract lets the auditor or auditing agency go through the code. The auditing form will then use manual and automated methods to analyse the code and look for errors.
They will then provide their findings to the smart contract platform, who will begin fixing the bugs. After they are done correcting the code, the auditing agency will go through the contracts once again. The process will go on until a perfect, errorless and loophole-free smart contract is arrived at.
Besides smart contract vulnerabilities, the auditing firm will also look into other things like gas fee optimisation. This is because some smart contracts carry out complex transactions to complete their intended function. This can be an issue on a high-fee network like Ethereum. Therefore, smart contracts can look into areas where developers can optimise the contracts and save on transaction costs.
Further, the auditors may also look at the network on which the contract is hosted, the APIs used to interact with the platform, and the oracles used to feed data into the smart contract. This ensures that the smart contract and its entire ecosystem are safe and foolproof.
Some of the most trusted smart contract auditing firms include CertiK, ConsenSys Diligence, Slowmist, PeckShield, Paladin, etc. CertiK has checked the smart contract of several renowned crypto platforms, including PancakeSwap, and other projects supported by Binance Labs.
ConsenSys Diligence is the brainchild of Joseph Lubin, a co-founder of Ethereum. Among the many services the firm provides, it is known for its automated auditing of Ethereum Virtual Machine (EVM) contracts.
Why do we need smart contract audits?
While smart contract audits are relatively new, their impact in the DeFi arena has been nothing but great. Here are a few advantages that smart contract audits bring to the world of DeFi.
Providing legitimacy to DeFi projects
Creating a DeFi project and creating a legitimate DeFi project are two completely different things. Smart contract audits act as a filter for differentiating legitimate projects from malicious ones. When real effort put into a project, it will have fewer errors, fewer loopholes and a genuine vision.
Additionally, there is also the effort put into rectifying errors that auditors find.
You can understand whether a DeFi project is legitimate or just another brick in the wall via a smart contract audit. The absence of a smart contract audit in a project’s whitepaper/website could also point to a possible rug pull, where developers create smart contracts with secret backdoors, enabling them to syphon all investor funds and disappear.
Protecting the interests of investors
The DeFi universe has a ton of capital revolving around it, and it is natural for those investing money to think twice. The “thinking twice” or the due diligence comes from smart contract audits. People are very cautious because once the money is gone, there is rarely a way to get it back, especially in the world of cryptos.
So, before investing big sums, investors look at who has audited the project and what the results are. Auditors, too, have made a brand for themselves, as some auditors are more trustworthy than others because of their methods, previous work and clients.
The greater trust of the people
In the larger scheme of things, if there is one breaking news about someone losing money because of smart contract errors, it affects the whole industry.
With DeFi especially, good PR drives a project forward, but bad PR sets the entire industry back. With more and more smart contract audits and auditors coming into play, it will bring the greater trust of the people into the industry and help with its overall expansion.
Conclusion
Smart contract audits may have been optional in the early days of DeFi, but they’re absolutely necessary in today’s DeFi world. Millions previously lost due to smart contract errors have ensured that project developers and investors are more cautious now.
