Smart Contract as an Effective Way of Conducting Transactions
A smart contract provides the ability to perform reliable operations without intermediaries since they are fully programmed and are executed automatically.
Smart contracts are built on blockchain technology, which allows users to conduct transactions and transfer data and material value without banks or third parties.
No one can change the terms of a smart contract. Therefore, participants can trust all of the data that appears on the blockchain. Read more about innovations of Ethereum one of the most popular platforms for smart contracts.
The advantages of smart contracts include:
- Autonomy: once published on the blockchain network, a smart contract will always be run uniformly and automatically
- Security: the safety and automatic execution of smart contracts are ensured by the decentralization and consensus algorithms according to which the blockchain system operates. It is an immutable network that keeps data confirmed by all participants.
- Efficiency: smart contracts allow the elimination of inefficient, non-performing intermediary payloads. Transactions are conducted automatically, without the need for additional approval.
|A program or transactional protocol that uses blockchain technology||Based on paperwork|
|Based on code||Based on law and legislation|
|Written in computer language||Written in legal language|
|The terms cannot be changed (hard/soft fork needed)||The terms can be changed, rewritten, or interpreted in a different way|
|The contract terms are automatically executed by all participants||The contract terms may not be fulfilled, or can be poorly executed|
|In case of violation, the punishment, penalty, or sanction is automatically penalized||In case of violation of the contract conditions, it is necessary to apply to the court|
|All transactions are carried out without third parties or intermediaries||Transactions are carried out with a lot of intermediaries|
|Transactions are conducted with the help of crypto-currency transactions||Transactions are conducted in foreign currency through banks|
|When contract conditions are fulfilled, the exchange of values happens instantly||The exchange of values happens with delays|
|All data on counteragents is stored on the blockchain, and the person him/herself establishes which information can be publicly available||One can get information on counteragents by providing statements and certificates from state authorities|
|The smart contract can be concluded from anywhere in the world without the in-person presence||The contract is signed only in the context of a personal meeting of two parties or their authorized representatives|
|The security of the transaction is guaranteed||There are no guarantees|
|When concluding a contract, all terms are observed unconditionally||Terms can be changed and rearranged|
|The smart contract is easy enough to understand in terms of all possibilities and transaction terms||When drawing up the average contract, the assistance of lawyers is necessary|
A smart-contract audit is quite similar to a regular code audit, which is used to test code in order to distinguish technical and security problems before deployment. Smart-contract developers are responsible for the safety of the products they offer their customers.
How to Prepare a Smart Contract for Audit
Preparation of comprehensive specifications is certainly a useful recommendation, as it provides a clear idea of the smart contract, its utilization, and its principles of operation. This type of documentation is essential for avoiding insecurities.
Despite the fact that the presence of this document plays an important role, many companies do not develop it. However, experienced engineers say that a set of specifications helps them clarify all complicated issues and describe the operation of each feature of the smart contract, thereby increasing the chances for the project’s success.
When preparing specifications, provide insights into the expected behavior of the smart contract: what should occur, and what should not. For this, build diagrams to come up with possible alternatives, and find existing inaccuracies in the smart contract. Commenting on the complicated sections of the smart contract will also help to clarify your intentions.
To avoid failures, record all data of the deployment process. Well-prepared documentation that describes the order of operations in a smart contract (the type of compiler used and the construction parameters for the initialization of each contract) will help avoid unnecessary problems.
A qualitatively-written smart contract greatly simplifies and automates the work of auditors. Also, do not forget to delete unused and unnecessary files, code snippets, and even some contracts. This will reduce the volume of clutter and simplify the auditor’s work.
It is recommended to use Solidity Coverage to audit smart contracts if we are talking about the Ethereum blockchain. This helps to evaluate test coverage and identify each piece of code that hasn’t yet been tested, and analyze it much more deeply.
In any case, coverage can fix several security bugs, but you have to provide a professional smart contract from the very beginning.
Blockchain developers to improve the efficiency of smart contracts facilitate their reading and evaluation.
When testing a smart contract, static analysis helps to reveal code vulnerabilities. Use tools like Oyente, Manticore, or Solgraph to analyze smart-contract code and detect common security issues.
Despite quality smart contract code audit, contracts can still contain bugs; therefore, one should always be ready for failure. That’s why you need to protect yourself by creating an effective update plan — to discover the code bugs if there are any.
Smart-Contract Dangers: Catch the Signal to Rescue Your Project
If we are talking about the application of smart contracts in order to attract investments, founders need to understand the necessity of project due diligence, particularly technical audits of smart contracts. Making your smart-contract code bulletproof is the key to building business credibility in the blockchain ecosystem.
According to a report generated in 2018 by researchers from Singapore and the U.K., approximately 34,200 out of 970,898 smart contracts (worth over $4 million) are vulnerable to technical bugs.
Without multi-layered evaluation of project feasibility (particularly verification of technical aspects) and smart-contract code audit with further identification and mitigation of possible risks, every smart contract you create and deploy could be an easy target for hackers. In order to remain confident of the validity of your code and maintain assurances of protection from errors and omissions, make sure your smart contract is checked by the best experienced developer who will follow coding standards and reveal spelling errors.
Smart-Contract Audit Phases
The key tasks of a smart contract audit include:
- Finding common errors such as stack, compilation, and reentry difficulties
- Discovering errors of the host platform
- Learning current and possible security issues
When auditing smart contracts, companies can follow either manual or automatic methods of code analysis.
The manual approach has many benefits. If a project has a large and professional development team, a manual approach to outline improvements related to efficiency, logic, and optimization of the smart contract is a perfect choice.
Team members must examine every piece of code, as the safety of the smart contract is the most important section to pay attention to in order to provide successful and lasting functioning.
In contrast to a manual audit of the smart contract, the automatic method is less time-consuming and allows testing for vulnerabilities much more quickly.
Anyone can benefit from smart-contract audits: developers, owners of ICO startups, and owners of the decentralized applications.
The Importance of the Smart-Contract Audit
Since the spread of popularity of token offerings and other related blockchain projects, smart-contract security audits have become one of the most in-demand services in the blockchain sphere. And it’s no wonder.
Smart-contract security plays a significant role in the success of the whole project, as it must be a priority in order to prevent any possible risks after code implementation.
Smart-contract auditing is an important stage for any smart contract, as investors and owners trust their cryptocurrency and/or tokens. It can help:
- give more confidence to investors that the contract takes into account and protects their interests
- provide an additional guarantee that the smart-contract code does not contain mistakes for a hacker to steal funds or block them. Additionally, some exchanges can request an audit before adding a token to their lists.
- receive higher ratings on ICO trackers and listings
Some problems can cause bugs in the smart-contract code, which is a bad situation, as nothing can be fixed anymore. Because of the irreversible nature of smart contracts, money can be lost on the blockchain, and there may not be any possibility of getting it back.
As a result, even a tiny vulnerability or misstep can be decisive. That’s why serious project developers prefer applying to professional companies to have their smart contracts tested properly. Developers know that the elimination of smart-contract problems can be really costly, so an audit shouldn’t be skipped, as it is the best way to save time and money.
Smart contracts must be carefully planned, taking into account all logical permutations and possible exceptions. If someone changes the order of the code (as in the case of a DAO attack) or forgets to initialize something (as in the case of Parity Freeze), he or she can perpetrate a catastrophe on the immutable blockchain.
The blockchain is still developing, so many new platforms for smart contracts have appeared, but the security of code is still an eternal issue in programming that will always be relevant.
A smart-contract audit is a prerequisite for any project to be considered safe and be suitable for trading on exchanges.
Remember, customers are trusting you with a lot of their money, so you are responsible for their savings. If someone hacks the network, all of their money will be lost. It is vital to reveal and warn about bugs and inefficiency problems in smart contracts. Protect your investors by hiring experts in the programming field. They must be experienced in both smart-contract programming and security.
Basically, lack of experience and the absence of deliberate and rigorously-thought-out project preparation and lack of technical knowledge are the reasons startups lack credibility. It is crucial to partner with expert companies and top-notch teams who are notable in the market and have successful projects behind them.
The Applicature technical team conducts in-depth analysis and security testing of smart contracts as well as business logic reviews for smart contracts. To remain in line with blockchain development principles, Applicature developers conduct automated and manual audits of code according to the latest standards.