Smart contracts execute tasks automatically when particular conditions are met and frequently handle massive data and resource flows. This unique ability gives room for security vulnerabilities in smart contracts.
Smart contracts are specialized programs kept on a blockchain that are often used to automate the execution of an agreement, allowing all parties to be confident in the conclusion without having to trust one another or any middlemen.
A smart contract assures that its execution will match the logic initially entered into it. Following the execution of the predetermined logic, the network’s final state will remain immutable.
Despite their potential, smart contracts are susceptible to weaknesses and assaults.
In this article, we will delve into the shadows of the smart contract world to discover some security vulnerabilities and how to avoid them.
What is a Smart Contract?
“Smart Contracts are computer protocols designed to digitally facilitate, verify, and enforce the negotiation or performance of a contract.”
They function as self-executing contracts in blockchain-based transactions.
They do not require human action in advance to validate and ratify the terms, allowing parties to exchange money, property, shares, or anything of value in a transparent and conflict-free manner.
Smart contracts are driven by digital assets and held in escrow to ensure that all parties to the agreement fulfill their obligations.
Its operation is based on three key attributes: conveying value, transparency, and immutability.
However, these advantages make them a popular target for hackers and cybercriminals looking to exploit security vulnerabilities in smart contracts.
The security vulnerabilities in smart contracts have recently been on the rise. The Wormhole Cross Chain Bridge Attack, which occurred in February 2022, stole over $320 million from Solana and Ethereum.
DODO DEX suffered a serious smart contract hack in March 2021, resulting in the loss of around $3.8 million in cryptocurrencies.
It is critical to highlight that security vulnerabilities in smart contracts result in significant monetary losses and undermine the protocol’s and its team’s credibility.
The long-term consequences of this are likely far greater than the short-term loss.
Understanding The Security Vulnerabilities in Smart Contracts
Security vulnerabilities in Smart contracts are flaws that malevolent parties can exploit in smart contracts.
These vulnerabilities are often identified and controlled through code analysis, but they can also be discovered indirectly by testing or monitoring the network for unusual activities.
Some of the most prevalent security vulnerabilities in smart contracts are due to improper coding techniques, bad system architecture or dependency on third-party libraries among other things.
Unlike most agreements, smart contracts are primarily concerned with monetary assets.
Because of the immutable nature of Blockchain technology, faults in these types of contracts cannot be reversed after they have been deployed.
Security vulnerabilities in Smart contracts are a major worry and a tempting target for hackers, as proven by recent assaults. The risk of financial losses from capital collapse remains substantial despite no external threat.
Let’s look at some security vulnerabilities in smart contracts.
Security Vulnerabilities in Smart Contracts
When you are well informed about the security vulnerabilities in smart contracts, you will be more committed to preventing and neutralizing these attacks.
Some of the security vulnerabilities in smart contracts are;
- Front-running
- Reentrancy attack
- Simple logic error
- Block gas limit vulnerability
- Default visibility
Front-running
Interestingly, smart contracts and transactions become fully public once submitted to the network as a pending transaction.
These transactions are exposed to the whole network in the Ethereum nodes’ mem pools, allowing block miners to choose transactions with the most significant gas charge.
This level of vision has a severe adverse effect. It enables bad actors to view the intended impact of a smart contract before it is validated on the blockchain.
Assume you have a smart contract that, when executed, performs an arbitrage that costs 0.04 ETH to deploy.
Knowing this information, scammers can duplicate your smart contract and submit it with a larger gas price. This lets them bypass your smart contract and seize your arbitrage opportunity by submitting their transaction first.
Unfortunately, these attacks are hard to avoid. Nonetheless, several cutting-edge tactics can help you secure your contract.
These include gas limitation, which requires accepting only transactions with a gas price below the designated level, and the pre-commit method, which entails sending a hash instead of your data in the first commit and supplying specifics later.
Real-life Example of Front-running
The DODO DEX hack is an excellent example of a front-running attack. The original attacker fell prey to two cryptocurrency trading bots during this hack.
This reduced the hack’s impact by intercepting some of the attacker’s attempts to exploit smart contract flaws.
The proprietors of both bitcoin trading bots agreed to refund the stolen monies, totaling $3.1 million, but the original attacker kept $700,000.
Reentrancy Attack
Reentrancy is one of the most well-known security vulnerabilities in smart contracts. It occurs when a smart contract uses its code to call another smart contract and then executes once the new call is completed.
This action requires the susceptible contract to make an external call.
Scammers hijack these external calls and recursively use the callback function to call back to the contract.
They can use malicious code to set up an agreement at an external address.
When the smart contract fails to change its status before sending payments, the fraudster can repeatedly execute the withdraw function, allowing it to drain the contract’s funds.
Real-life Example of Reentrancy Attack
The most well-known example of reentrancy is the DAO assault, which occurred only three months after its introduction.
Over several weeks, an anonymous hacker was able to drain the majority of the $150 million in ETH from the DAO’s smart contract. This resulted in losing investor trust and seriously affected Ethereum’s legitimacy.
Following the hack, the Ethereum community voted to restore the network’s original state and shut down the DAO.
Simple Logic Error
Logic errors are one of the most common security vulnerabilities in smart contracts.
These can include typographical errors, misinterpretations of specifications, and more significant programming flaws that compromise the security of smart contracts.
The good news is that these issues can be found and resolved during the smart contract audit. Therefore, you should not skip this step before deploying your smart contracts on the blockchain.
Real-life Example of Simple Logic Error
The Hegic case is an interesting example of how a tiny error can result in substantial loss. Hegic is a platform that enables consumers to insure against price volatility.
The platform was forced to restart its protocol after discovering a simple typo in the code: instead of the “OptionsIDs” function, which unlocks liquidity in expired contracts, it had the non-existent “OptionIDs” command, which omitted the letter “s.”
Because of this issue, users’ assets were frozen anytime they did not exercise their options, leaving no liquidity for expiring contracts. Hedic spent $48K to fix this issue and refund affected users.
Block Gas Limit Vulnerability
The block gas limit ensures that blocks stay manageable. If a transaction consumes too much gas, it will not fit into the block and will thus not be processed.
The result is a block gas limit vulnerability: if data is stored in arrays and then accessed via loops over these arrays, the transaction may run out of gas and receive a refund. This can result in a denial of service (DoS) attack.
Real-life Example of Block Gas Limit Vulnerability
GovernMental is another unsuccessful Ponzi scheme idea. To join the project, a user had to submit a particular quantity of Ether to the contract.
At some point, the list of project participants became so large that clearing the arrays would have needed more gas than the maximum allowed for a single operation. From this point forward, all attempts to remove the arrays failed.
Default Visibility
Visibility determines whether a function can be accessed internally or externally by users. The default visibility state for functions is public.
It becomes a problem when smart contract developers fail to declare the visibility of functions that should be private or only accessible within the contract.
Real-life Example of Default Visibility
The Parity MultiSig Wallet exploit happened because developers mistakenly made two functions public. The attacker could call these functions and change ownership to the attacker’s address.
This error enabled the hacker to steal $31 million worth of Ether from three wallets.
How To Avoid Security Vulnerabilities in Smart Contracts
Here are some measures to take to avoid security vulnerabilities in smart contracts.
- Conduct a smart contract audit
- Document security vulnerabilities in smart contracts and security practices
- Use a bug bounty program
- Perform internal security checks
Conduct a Smart Contract Audit
Not surprising, right? It may sound simple, but it is your most important move.
The audit can assist you in eliminating all vulnerabilities in your contract, ensuring its proper functionality, optimizing gas usage, and improving your source code’s overall performance.
This is why it should be necessary for any smart contract development process.
Smart contract auditors will document your smart contract security weaknesses and advise you on how to address them and improve your smart contracts.
Document Security Vulnerabilities in Smart Contracts and Security Practices
Most, if not all, mistakes can be transformed into learning experiences. It would help if you documented security vulnerabilities in smart contracts and errors made by others to avoid them.
Afterward, you may check your smart contract against all known security flaws.
Similarly, keeping a list of the most effective smart contract security procedures major firms use is prudent.
These could include keeping as much code off-chain as possible, writing short functions, dividing the functionality across numerous contracts, and providing detailed code documentation.
Use a Bug Bounty Program
After performing a smart contract security audit, you can use the bug bounty program to secure your smart contract further.
Bug bounty schemes are places where ethical hackers can tamper with your code to discover smart contract flaws. In these schemes, people are compensated for reporting defects.
Perform Internal Security Checks
Set up an internal security team to monitor the security of your smart contracts by regularly analyzing the source code for flaws and ensuring that smart contract hackers may exploit no issues.
Final Thoughts
Smart contracts are the foundation of blockchain applications, but they also have weaknesses that can be abused if not correctly managed. Developers must guarantee that their smart contracts are secure and without faults.
By implementing the actions listed above, such as conducting a security audit, documenting smart contract vulnerabilities, running internal checks, and utilizing bug bounty programs, you can almost ensure that your smart contracts are secure and protected from hostile attackers.
Investing in a robust security architecture is the most effective strategy to safeguard your smart contracts.