Smart Contract Security Risks

An Elaborative Analysis Of Smart Contract Security Risks

It’s high time that blockchain is leaving its imprint in every industry possible. Thereby, it has become an inevitable fact that blockchain is a crucial piece of the DeFi ecosystem that also makes them the prime target for attacks. 

The act of decentralization through which the transactions are executed in the blockchain corresponds to the significance that Smart contracts hold. Precisely, Smart Contracts are the written code that contains details of the functions to be performed on the blockchain network. As with the growing popularity, there are also rising cases of security breaches in the Smart contracts. 

So, here in this blog, you can explore the types of smart contracts, blockchain security vulnerabilities, the significance of smart contract security auditing, and so on. Let’s just jump in and get started. 

The Need For Smart Contract Security

There was a recent piece of news stating that the Li Finance Swap Aggregator faced a $600, 000 loss from 29 wallet users. The reason for the attack is identified to be the exploitation of the bug that incapacitated the smart contract security. And not just this there are many more hacks that directly implies that the need for Smart contracts to be properly secured which otherwise would result in heavy loss to the business. Hold on to reading this blog as we are going in further for a deeper understanding of smart contract hacking and related information to that.

The Different Types Of Smart Contracts

Before getting into the core subject let’s get the dose of different smart contract types that exist. Broadly, smart contracts are classified into three types. They are:

Smart legal contracts: The most adopted type is the smart legal contract wherein certain codes are put in place to be fulfilled by the parties involved in the transactions. Incase of failure to meet the set conditions the legal actions defined in the smart contracts start acting against the party. 

Decentralized autonomous organizations: Decentralized autonomous organizations abbreviated as DAOs comprise communities of the blockchain network. It contains a set of rules agreed upon by the members of the community and every task is performed by enforcing the rules. 

Application logic contracts: Application-based code forms the structure of Application logic contracts which enables communications across different channels. For instance, the merging of the Internet Of Things(IoT) into blockchain technology.

What Is Smart Contract Hacking?

So far we’ve known Smart contracts for their innate ability of transparency and immutability. But the fact that Smart contracts are often directly linked with the transfer of crypto assets also makes them more vulnerable to security threats.

To define hacking in simpler terms, any bugs or errors in the source code of the Smart contracts are exploited by the hackers resulting in the loss of great deals of money. A recent study published in “Finding the greedy, prodigal, and suicidal contracts at scale” revealed that around one in twenty smart contracts is at the risk of getting hacked. Having known about the term smart contract hacking, let’s study what are the different security vulnerabilities these smart contracts are susceptible to. 

Broad-View Of Blockchain Security Vulnerabilities

Security issues in Smart contracts audit are predominant in the case of financial assets. Getting into the crux of the blog, in this section let’s discuss what could possibly go wrong in a smart contract for it to be technically hacked. 

Below are the nine vulnerable flaws found based on the inferences of the security audits.

  1. Disruption in randomness

Some gambling DApps uses smart contracts to generate random numbers for selecting the winners. Instead of computers producing this number, they are manipulated by block miners to their advantage. Thus, instead of relying on block characteristics for randomness, some other external oracle can be implemented to overcome this issue. 

  1. Rug Pulls

To define rug pull scams in brief terms, the developers convince the investors to invest money in a DeFi project by creating a liquidity pool with valueless tokens and valuable cryptocurrencies like Ripple. Smart Contract Security Risks- When the investments start to pour in and the token value rises, the hackers pull out the valid cryptocurrencies and leave the fake tokens.

  1. Adoption of weak Protocol 

A consensus protocol for a blockchain network is important to keep the network functioning. But recently, exploiting the flaws in the weak protocols hackers will gain complete control over funds. Sybil attack is one such example, where malicious nodes are created, using which the attacker does an unprivileged transaction of funds or modifies valid transactions.

  1.  Errors in the token amount calculation

Majorly, smart contracts deal with the to and fro token or ETH transfers. In which case, there are probable chances for mistakes linked with percentage calculation, fees, profit calculations, etc. Errors such as incorrect decimal pointing, missing out accuracy constant in mat operations, and so on that leads to a loss in the funds.

  1. Interface glitches

Usually, the name of the constructor and the smart contract are the same. A constructor is one who has the access to transfer the accumulated fee in the financial pyramid. But if in case the name of the constructor is changed but failed to update the same as the name of the contract, it paves way for anyone to intrude in and steal the accumulated funds taking advantage of name discrepancies.

  1. Order execution disruption

The state of the contract is determined by the values of the variables which are changed depending on the Smart contract call functions. In some scenarios, when the miners are rearranging the order of execution, chances are the state of the contract is impossible to determine which causes vulnerability to the contract.

  1. Time component

Some smart contracts are time-dependent which means the timestamp of a transaction is equal to the label of the block. This lays the way for miners to change the timestamp of the block using the perks given to them. This favors miners to make use of it to their own advantage.

  1. Blockhash hassles

It is similar to that of the time component where functioning based on blockhash can be manipulated by the miners. This results in the exploitation of contracts to their own advantage which may lead to a loss in funds.

  1. Incorrect exceptions

Exceptions are thrown in Solidity under different scenarios. Exceptions are handled based on the interactions between smart contracts. If not handled properly it gives way to hacking by malicious users and the transactions will rollback.

On An Endnote | Smart Contract Security Risks

All of this makes it clearly evident that Smart contracts should be devoid of bugs to prevent the loss of funds. That’s where Smart contract auditing services step in to do the job for you.

We at QuillAudits have cybersecurity professionals to security check the on-chain code of the Smart contract and ensure it is devoid of blockchain security vulnerabilities. It’s your take now to make a call and team up with us for exceptional services.  

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