What is Smart Contract Security and How to Strengthen It?

Saving your money in the blockchain is indeed safe. Each transaction is immutable and transparent, making it almost impossible to rig. However, relying on transparency alone isn’t enough, especially if you invest a lot of funds in a business in the blockchain. Smart contract security serves as the right strategy to keep your funds safe.

This article will explore the core of smart contract security. What is smart contract security, and what does it do? Why is smart contract security essential for your business? What are the risks waiting ahead? And most importantly, what can you do to protect your funds?

What is Smart Contract Security?

Before delving into security, we need to understand the basics of a smart contract. A smart contract is a digital contract stored in the blockchain and will automatically operate once the conditions are met. It is made of code that regulates automatic rules in the blockchain system. For instance, the moment you transfer tokens to your friends, it will run automatically to complete the transaction and issue a receipt. 

Now, what’s the correlation to smart contract security? It serves as a fundamental layer of protection used by developers, exchanges, and users when operating smart contracts. More importantly, it helps safeguard funds from external threats such as hackers, exploits, malicious bots, and social engineering attacks. 

Why is Smart Contract Security Essential?

As stated above, the gist of smart contract security is about protecting your business funds and preventing them from external vulnerabilities like hackers. Moreover, the primary intention alongside these is auditing. 

Auditing is one of the essential aspects of smart contract security. It serves a bigger purpose other than just doing the audits, it enforces the appropriate strategies to shield funds against outside threats, and even internal bugs. 

External Credibility

One of smart contract’s characteristics is immutable, thus why as business owners you need to recheck and rethink the decisions. Once you think it’s solid, the next thing you can do is audit it. Auditing the smart contract adds a plus point to the eyes of outsiders. It shows that you are serious about the business and have security concerns. This approach can help you gain clients’ trust.

Storing of Value 

A smart contract is often used for businesses with huge funds. The more you store funds in the blockchain, the more you are prone to threats. Auditing your smart contract may be high cost, but consider it as an investment. You pay high to protect something with higher value. After all, compared to your funds, spending on security shouldn’t drain you much.  

Internal Trust

Other than building external trust, you shouldn’t overlook internal trust. Getting your smart contract audited will give your internal teams, such as developers, project managers, and staff, a sense of security. Not only that your funds secured, but so are your teams. It also shows that you, as the business owner, are reliable and take this matter seriously. 

Security Insights and Recommendations

Accepting criticism and bits of advice is important to get your business growing. The external team, in this case, is the auditors, who can give you judgment without bias. They aren’t just limited to seeking flaws, but they also offer solutions and try to fix the problems. 

Smart Contract Security Vulnerability

Recognizing where your smart contact security level at is necessary to determine the severity of threats you are facing. This simple guide can help you act quickly to prevent attackers from causing further. 

Smart Contract Security Risks

A smart contract is efficient and transparent which makes it great. However, it has its cons if not managed carefully. Putting on security is a wise decision, but even so, as a business owner, you ought to recognize everything that can put your funds at risk.

Citing the Open Worldwide Application Security Project (OWASP), there are ten points worth attention so that the smart contract security will work optimally.

Access Control Vulnerabilities

Lack of attention to access control can put your funds at stake. It is essential to set the access control to only those who can modify it so that unauthorized users cannot access the data of the contract. 

By ignoring access control, you’re leaving your contract wide open for unauthorized users to mess with. It’s crucial to restrict who can modify the contract, so only the right people can interact with it. Without this, anyone could potentially steal or mess with your data, leading to huge risks, especially if there are funds involved.

Price Oracle Manipulation

Sometimes cybercriminals falsify external data, for instance tokens’s price, to manipulate the smart contract by making it appear as valid. Then, they take advantage of the contract’s logic to cause system instability and rob the funds. 

This shows that you need to be critical and double-check the oracle feeds to prevent the smart contract from getting tampered by attackers with malicious intent. 

Logic Errors

Similar to putting logic into every sentence written, logic is also necessary when operating a smart contract. For instance, if token minting hasn’t been set to a certain limit, the contract can be exploited to print unlimited tokens.

This problem is frequently unnoticed because the code may appear accurate in the system. However, from a business logic perspective, this small flaw can cause a huge loss if not handled as soon as possible.

Lack of Input Validation

Lack of input validation refers to a situation where the smart contract doesn’t properly verify the data it receives. If the contract fails to check the data accurately, attackers can send malicious or incorrect inputs to exploit the contract.

For example, if the contract doesn’t validate the billing number input, attackers could send invalid or manipulated data that could corrupt the contract’s logic, or worse, allow them to take control of the contract.

Reentrancy Attacks

Attackers can exploit a vulnerability by calling the contract repeatedly during its execution. This can cause errors in the contract’s process, potentially leading to a situation where funds are transferred multiple times. As a result, attackers could receive the funds more than once, instead of just once as intended.

To prevent this, you need to ensure the contract doesn’t get stuck in a loop where it can be called repeatedly. Operate reentrancy guards to prevent the contract from being called during its execution, essentially blocking any sneaky reentrancy attacks. Another trick is to use the checks-effects-interactions pattern, which verifies all conditions before any funds are transferred, so no one can trick the contract into transferring funds multiple times. 

Unchecked External Calls

Think of a 3rd-party wallet that you can connect to different platforms. Usually, the wallet will verify that the transaction is legit. But sometimes, other apps can also connect to it. If the wallet doesn’t double-check these connections, and one of those apps turns out to be a scam, your money could get drained without you realizing it.

In the case of unchecked external calls in smart contracts, it’s almost the same thing. A smart contract can “connect” to other contracts, and if it doesn’t properly verify these external connections, a hacker can exploit the situation. They can manipulate the contract they’re calling, and suddenly, they’ve got access to your funds or data without anyone noticing.

Flash Loan Attacks

Attackers can use flash loans to exploit weaknesses in smart contracts. For instance, they can manipulate the price of tokens or assets in the contract and change the conditions to their advantage, such as price manipulation or arbitrage attacks.

Smart contracts do not always have adequate protection against price manipulation or external conditions, thus why flash loans are a loophole that attackers can exploit to make huge profits in a very short time, without anyone realizing it.

Integer Overflow and Underflow

Overflow occurs when the numbers in the smart contract are excessive and underflow occurs when the opposite happens. Both can lead to errors in smart contract, causing the numbers recorded as null. 

Using SafeMath can block the possibility of overflow and underflow. Additionally, adding checks for input/output ensures that the values ​​entered stay within reasonable limits. These measures help prevent attackers from exploiting bugs to take more tokens than they should or break the contract.

Insecure Randomness

Some contracts require random numbers to make decisions. While the chance of generating common numbers might be low, it’s still possible. For example, in a lottery, the contract might generate numbers that are too predictable or not truly random.

This predictability makes it possible for attackers to predict or even manipulate the outcome. To prevent this, a smart contract should refer to a secure source for generating random numbers, like an oracle, which ensures the numbers can’t be easily guessed or controlled.

Denial of Service (DoS) Attacks

This refers to an attack where the perpetrator purposely spams the smart contract by repeatedly calling it, making it impossible for others to interact with the contract.

To prevent this, you can take precautions by limiting resource usage and ensuring contracts don’t get stuck in infinite loops. For example, set time or gas limits so that contracts won’t be stuck executing for too long. Additionally, limit the number of calls to certain functions and optimize the contract code to make it more efficient, so that contracts are less vulnerable to attacks like “clogging” or spamming.

Conclusion

Smart contract security is essential for safeguarding your business and funds in the blockchain. While blockchain itself offers transparency and immutability, those benefits alone aren’t enough to protect against malicious attacks. Proper smart contract security measures, such as auditing, secure access control, and addressing vulnerabilities, are crucial to ensuring your contract operates safely and efficiently. Without these precautions, your funds and data are at risk of being exploited by attackers who take advantage of weaknesses in the system.

To protect your assets, it’s important to stay vigilant about the risks involved in smart contract interactions. Whether it’s reentrancy attacks, unchecked external calls, or price manipulation, each vulnerability can lead to significant financial loss. By implementing smart security strategies, such as using reentrancy guards, conducting regular audits, and using safe coding practices like SafeMath, you can safeguard your contract from being compromised. After all, investing in security now means protecting your business in the long run.