A smart contract is an integral term in the blockchain landscape and serves as the backbone of multiple blockchain-based applications. It is a program that runs on blockchain networks and defines the conditions and rules of a digital contract. The applications of smart contracts have found recognition in blockchain and Web3 applications without widespread and standard legal recognition. However, smart contract security has emerged as a prominent concern for the blockchain and Web3 ecosystem, which is preparing for mainstream adoption.
DeFi applications are on the rise, and smart contract applications span across different use cases, including cryptocurrencies, NFTs, property agreements, digital ownership rights and voting. The necessity of secure smart contracts is clearly evident in the consistently growing value of assets locked in smart contracts across various blockchain networks. The following post helps you understand the top security challenges for smart contracts and the relevant solutions.
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Importance of Security in Smart Contracts
The first thought on your mind about security of smart contracts would focus on blockchain. If smart contracts are deployed on blockchain networks, they can capitalize on the security traits of blockchain. Where do smart contract attacks find their way through the security of blockchain? The answer would point to the nature of smart contracts, as they are practically software programs with lines of code. Smart contracts defined the actions and required conditions to be fulfilled for execution according to specific parameters. If attackers can find a vulnerability in the code of the smart contract, they can compromise the smart contract’s integrity.
Why do you need to learn about security for smart contracts? You should learn how to secure smart contract to ensure safeguards against unwarranted malicious attacks. For example, only 33 smart contract exploits resulted in losses worth $1.25 billion in 2022. The biggest smart contract exploited in 2022 was the Ronin Bridge hack, which ended up costing $615 million in losses.
Previously, attackers had showcased the pitfalls in security for smart contracts with the Genesis DAO hack in 2016. Hackers used a security flaw in the smart contract of the DAO to steal almost $50 million in ETH tokens from investors. Subsequently, in 2017, Parity blockchain lost $150 million in ETH tokens to a vulnerability in their smart contract.
Fundamentals of Smart Contracts and Vulnerabilities
The severity of security threats to smart contracts is evident in the number of losses in smart contract hacks. Therefore, it is important to find answers to “What is the security of a smart contract?” and review the important smart contract vulnerabilities. You can develop a better understanding of smart contract vulnerabilities by learning about the fundamentals of smart contracts and how they work.
A smart contract is a digital version of a real contract encoded in an application, which helps in automatic verification and execution. Smart contracts operate on blockchain networks and do not require the intervention of centralized intermediaries. The value of smart contracts is also visible in the capabilities for data verification, avoiding possible conflicts and implementing clauses of insurance contracts.
The working of smart contracts is similar to an alarm that triggers when the time is right. You set the alarm for waking up at 7 in the morning, and it rings at the exact time, regardless of whether you are awake or sleeping. Similarly, a smart contract would execute a transaction once it finds that the transaction meets the necessary criteria defined in the contract. Are smart contract security tools required for such a seamless and secure transaction process? You can find the answer to the question in the three crucial attributes of smart contracts.
Smart contracts have immutability, the ability to express value and transparency. However, attackers use these attributes as vulnerabilities and target smart contracts for false motives. Therefore, it is important to develop awareness regarding security vulnerabilities in smart contracts.
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Most Popular Smart Contract Security Issues
The best way to understand “What is the security of a smart contract?” would recommend learning about the challenges. You can safeguard smart contracts better when you know the potential risks to security of smart contracts. Here is an outline of some of the most common vulnerabilities in smart contracts.
The first edition of the attacks on smart contracts includes front-running attacks. When you deploy smart contracts on a public blockchain, anyone can access the code of the smart contract. The entire network can see the smart contracts in the Ethereum node mem pools. How do you identify smart contract security issues in this case?
Miners could easily choose the transactions which can offer the highest rewards. As a result, malicious actors could find out the possible results of executing a smart contract before deploying on blockchain. Hackers can use front-running attacks to gain an unfair advantage and steal opportunities for arbitrage.
The problem with front-running attacks is the difficulty to secure smart contracts against front-running. On the contrary, you can follow best practices for securing your smart contract, such as gas limiting. The gas limiting approach ensures that the smart contract would accept transactions with a gas price below a specific threshold. In addition, a pre-commit scheme can also help in fighting off the concerns of front-running attacks in smart contracts.
One of the biggest shares of attacks on smart contracts leverages vulnerabilities in the smart contract logic. You can find effective ways to avoid smart contract attacks on logical vulnerabilities by employing careful reviews and audits of the code before deploying them. Immutability is one of the defining attributes of smart contracts. Once you deploy smart contracts on blockchain networks, there is no turning back. If your smart contract code has errors, attackers can seek new ways to break into the code by leveraging the errors.
Some of the common logical errors in smart contracts could include typographical errors and incorrect understanding of specifications. On top of it, complicated programming errors in the code could also affect the security of smart contracts. However, you can rely on smart contract security tools for careful audit of the smart contract logic before deploying on the blockchain. One of the notable examples of challenges to security of smart contracts due to logical errors is Hegic. It is a blockchain-based platform that offers options for insurance against price volatility and lost $48,000 due to a minor typographical issue.
Reliability of Timestamps
The next addition among security challenges for smart contracts points to timestamp dependence. Malicious attackers can manipulate timestamps for a few seconds and change the output of transactions to their advantage. You can learn how to secure smart contract against timestamp dependence by avoiding the ‘block.timestamp’ function for obtaining current time.
It is important to note that the timestamp dependence vulnerability can have a detrimental impact when associated with critical smart contract components. Apart from avoiding the ‘block.timestamp’ function, you can also solve the timestamp dependence issue by allowing an error range of +900 seconds.
The outline of security challenges for smart contracts would be incomplete without mentioning reentrancy attacks. Reentrancy is one of the most popular vulnerabilities of smart contracts, with many notable examples. Most of the discussions around “What is the security of a smart contract?” focus on ways to address reentrancy attacks. Such types of attacks are common in situations where one smart contract invokes another smart contract through code. When the smart contract finishes the call, it can continue with execution. Reentrancy attacks depend on such calls to external contracts.
Attackers steal the external calls, followed by making a recursive call to the victim contract by leveraging a callback function. As a result, attackers could create another contract at a different external address by leveraging malicious code. The smart contract can showcase failure in updating the contract state before fund transfer.
At the same time, attackers can use continuous calls for the withdraw function, which can help them withdraw funds staked in the contract. One of the popular examples of a reentrancy attack is The DAO attack, which resulted in loss of $150 million in ETH tokens from the smart contract of the DAO.
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The concerns of integer underflow and overflow are also responsible for creating security concerns in smart contracts. Integer mismatches are a common vulnerability in many smart contract programming languages, specifically Solidity. You can find better smart contract security tools for testing integer mismatches and improving security of smart contracts. It is important to note that Solidity smart contracts use 256 bits for word size. When users reduce value of an unsigned integer to zero, it is more likely to return to its maximum value.
Malicious agents can use a scam address to exploit the smart contract. The scam address is documented on the smart contract for sending 1 unit of ETH with zero balance. As a result, it would turn back the smart contract balance to the maximum value, i.e., 4.3 billion ETH. The victim smart contract would believe that the malicious address has 4.3 billion ETH in its balance.
Therefore, the smart contract would allow withdrawals that could drain the funds staked in the contract. The overview of smart contract attacks must also reflect on how underflow and overflow problems can create discrepancies between expected and actual transaction outcomes. One of the favorable solutions for avoiding integer mismatch issues in smart contracts is the Solidity 0.8 compiler. The compiler can automatically verify the presence of integer underflow and overflow concerns.
The issues with smart contract security also invite attention to problems with block gas limits. It is a vital requirement in smart contract design to prevent blocks from growing large. Transactions that consume more gas than the defined threshold would not fit within a block.
As a result, such transactions are not executed. However, the block gas limit leads to a prominent smart contract vulnerability. In the event of storing data in arrays and enabling further access by leveraging loops, the transaction could run out of gas. Subsequently, the block gas limit ends up creating a denial of service attack.
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The review of prominent challenges to security of smart contracts shows that developers have additional concerns about their responsibilities. If you are creating a smart contract, you must know how to secure smart contract before deploying it on blockchains. An in-depth understanding of smart contract programming fundamentals and Solidity programming language could offer a boost to smart contract security. The problem with smart contracts is evident in the basic traits of immutability and transparency.
You can learn more about smart contract vulnerabilities by diving deeper into smart contract fundamentals and Solidity fundamentals. However, you should choose trustworthy training resources which can offer valuable insights on securing blockchain-based applications and smart contracts. In addition, it is important to note that blockchain security is not limited to the smart contract layer only. Explore other dimensions of security in the domain of blockchain and Web3 in detail right now.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!