Every time I read an article about cryptocurrency hacks on the Internet, I sigh in disappointment. I always ask myself if there will ever be an end to the alarming frequency of cyber attacks on blockchain protocols. Every time a cryptocurrency hack occurs, it feels like the cryptocurrency industry takes ten steps back, undermining its progress and exacerbating the industry’s image problems.
It seems that crypto hacks are not happening because effective cybersecurity measures are not in place, but because they are insufficient or currently outdated. Developing better cybersecurity technology must be seen as a race to beat hackers at their own game, and further improvements are needed to counter hacker tactics, and cybersecurity technology must stay 10 steps ahead of cyber threats.
In this article, we take a closer look at the effectiveness of smart contract audits, highlighting the importance of regular audits and the convergence of different approaches towards a more secure blockchain ecosystem.
What are smart contracts?
Smart contracts are computer programs that run automatically on the blockchain and are designed to function (i.e., an NFT is issued) when certain conditions are met, with the ultimate goal of eliminating the middleman.
It is hard to imagine today’s world of decentralized applications (DApps) without their capabilities, but deploying them on blockchain protocols comes with potential risks, namely making them vulnerable to cyberattacks such as DOS attacks, phishing, flash loan attacks, rentrancy attacks, and more.
One of the earliest incidents that proved blockchain technology was not the gold standard for cybersecurity involved smart contracts, remembered by many as the infamous DAO hack in 2016, where hackers exploited a flaw in the code to steal over $50 million.
The most recent example of this type of exploit is the Normie memecoin hack, which occurred on May 26, 2024. The exploit not only caused the loss of over $800,000, but also caused the memecoin’s market cap to plummet from $41 million to $35,000 in a matter of days.
Why do smart contract hacks happen?
There are bad actors in every dark corner of the web. Smart contract hacks occur because hackers are able to identify and exploit vulnerabilities in smart contracts. In most cases, smart contracts are written by humans, making them prone to errors that hackers can exploit.
In other cases, hackers trick unsuspecting users into interacting with malicious smart contracts to steal funds.
Countering Smart Contract Hacking
Blockchain protocols still suffer significant economic losses due to recurring exploits, and to combat this threat, cybersecurity experts typically recommend regular smart contract audits.
Although this security measure may seem effective at first glance, obtaining an audit certificate is never the most foolproof security measure: in fact, experience shows that audits need to be performed on a regular basis, and a one-off audit is never enough.
Moreover, in the DeFi world, the emergence of AI has brought major advances in blockchain security, and AI is becoming an increasingly effective tool in detecting anomalies.
Leveraging AI will raise the bar in audit technology and reduce reliance on traditional manual processes, further enhancing the ability of expert auditors to perform thorough risk assessments.
The Importance of Smart Contract Audits
A smart contract audit is the process of checking the code to find potential security flaws. It is not an ultimate measure, but it has gained importance over the years, especially with the rise of specialized auditing companies.
Regularly checking for vulnerabilities is an industry-standard procedure justified by the common wisdom that prevention is better than cure. It is also a reminder that cyber threats are always lurking just around the corner. Most importantly, blockchain protocols need to diversify their cybersecurity strategies and combine regular audits with other evolving technologies such as artificial intelligence (AI).
Daniel Jiwoong. Im, CEO of UBET Sports, commented on the importance of regular smart contract audits:
“Smart contract audits are essential for platforms like UBET Sports operating in the decentralized finance (DeFi) space. These audits identify and mitigate security vulnerabilities that could be exploited by bad actors, protecting users’ assets and maintaining the integrity of the platform. Regular audits also build trust and confidence among users, reassuring them that the platform has been rigorously tested and verified by independent experts.”
“Recently, UBET Sports has undergone three comprehensive smart contract audits, demonstrating its commitment to security and reliability. The first audit coincided with the launch of UBET Sports’ decentralized exchange (DEX) for sports betting and established a secure foundation. Subsequent audits focused on enhancing the Automated Market Maker (AMM) to improve slippage, optimizing gas fees, improving push settlement, and building a revenue sharing mechanism for liquidity provision,” he added.
Are regular smart contract audits worth it?
“Building an on-chain product comes with challenges, including the need for pre-release audits and the hinderance of continuous integration and deployment. Despite these challenges and the high costs associated with multiple audits, we prioritized security to protect our users. With two more smart contract updates planned for this year, we continue to make steady progress in the SportiFi space, which combines sports and DeFi,” Daniel further stated.
Conclusion
Billions of dollars have been lost over the years due to crypto hacks by bad actors. Hacks can occur due to vulnerabilities in smart contracts, which can compromise the blockchain protocol and result in the theft of user funds.
Promoting a secure blockchain ecosystem is at the heart of any cybersecurity effort, including smart contract audits, designed to combat emerging cyberattacks.
Smart contract audits typically involve a detailed examination of a protocol’s codebase and are recognized as one of the standard techniques for combating potential crypto hacks. With the emergence of specialized auditing firms and advanced tools, they are becoming an increasingly important technique in blockchain security.
