A security audit systematically analyses an application, system, or database to assess its strength, security and robustness. In blockchains, security audits consist of a peer review of a smart contract or blockchain code to identify potential bugs or vulnerabilities. Most security audits follow widely accepted standard examination processes such as the "Common Criteria for IT Security Assessment".
Many companies conduct security audits to ensure their systems are impenetrable against potential leaks, intrusions, or cyberattacks. Additionally, security audits are critical to determining regulatory compliance as they make clear how a company or institution handles and protects sensitive data. The audits can also examine the physical access to the company's facilities and information systems and the preventive strategies against possible attacks.
Security audits can be considered one of the three main types of security diagnostic methods, along with vulnerability assessments and penetration testing. However, full security audits often include penetration testing and vulnerability assessments, so the definition of the term may change depending on the context. As mentioned earlier, a security audit assesses an information system's security against a set of criteria.
In contrast, a vulnerability assessment relies on extensive scans of the entire system to identify security vulnerabilities. In other words, security audits are more specific, focusing on a particular niche, and vulnerability assessments are more general.
Finally, we have penetration tests consisting of simulated attacks to test a system's weaknesses and strengths. White hat hackers are sometimes only hired to carry out these authorised cyber attacks. Some companies also offer rewards through bug bounty programs. Ideally, security audits should be performed annually to ensure that defences are up to date against the latest threats.
The Need for Security Audits
A smart contract security audit provides a detailed analysis of a project's smart contracts. These are important to protect funds invested through them. Because all transactions on the blockchain are final, funds cannot be reclaimed in the event of theft. Typically, reviewers examine the smart contract code, create a report, and make it available to the project for editing. A final report is published detailing any outstanding bugs and work already done to fix performance or security issues.
Typically, these contracts are written in the Solidity programming language and are hosted on GitHub. Security audits are especially valuable for DeFi projects hoping to handle multi-million dollar blockchain transactions or large numbers of players. Audits typically follow a four-step process:
1. Smart contracts are available to the audit team for initial analysis.
2. The audit team presents its results to the project for action.
3. The project team makes changes based on the issues found.
4. The audit team publishes its final report considering new changes or open errors.
For many cryptocurrency users, smart contract reviews are essential when investing in new DeFi projects. It has become a standard for tasks that want to be taken seriously. Certain exam providers are also considered industry leaders, making their exams more valuable in the eyes of investors.
Why do we need smart contract audits?
As large amounts of value are traded or locked into smart contracts, they become attractive targets for malicious attacks by hackers. Minor addition, small coding errors can lead to the theft of large sums of money.
For example, the DAO hack on the Ethereum blockchain cost around $60 million in ETH and even resulted in a hard fork of the Ethereum network. Since blockchain transactions are irreversible, it is imperative to ensure that the -Code of a project is safe. The high security of blockchain technology makes it difficult to recover funds and fix bugs after the fact, so it's best to avoid vulnerabilities at all costs.