Smart contract audits have become a must for businesses and individuals making transactions in the blockchain. NFTs (non-fungible tokens) which are creative intellectual properties are currently gaining more and more popularity. These crypto tokens are managed on blockchain technology like Ethereum and their function is based on underlying smart contracts.

However, the smart contract code and blockchain security are under threat. This is the reason why having the assistance of smart contract auditors to make reports has become a must. This ensures security and money loss prevention. 

In this article, you will learn more about what is a smart contract audit, what it involves, why are smart contracts applied on NFT, a list of the most common vulnerabilities that can suffer, and the importance of making regular audits.

What is a smart contract audit?

A smart contract audit is an accurate and careful inspection of the source code. This is done to identify potential risks and code errors, avoid issues, and ensure the best optimization and performance levels of the contracts. At the end of the day, smart contracts are computerized transaction protocols, a software that can come with security vulnerabilities. Vulnerabilities that must be avoided through an audit as smart contracts are the ones that secure millions of dollars of value of DeFi Tokens. 

However, a smart contract audit cannot be done if there is no knowledge of the programming language they are written in. And, most of these programming languages are relatively new as they appear alongside the development of blockchain. For instance, one language used often is Solidity, a smart contract programming language that has less than 10 years of running. This is why auditors with expertise should be involved in these audits. The process could require four steps: 

  1. First, the smart contract is given to the smart contract auditor to start with an initial analysis and identification of possible risks.
  2. Secondly, the auditor or team will present to their clients their findings.
  3. Thirdly, if there have been identified risks and potential threats, the auditor should apply the correspondent and more efficient changes to solve these issues.
  4. Finally, the auditor will provide a final report stating any relevant considerations, changes, or errors that need to be kept track of. 

Applying Smart contracts to NFTs

The combination of Non-fungible tokens with smart contracts unlocks a range of use cases and allows NFTs to be more efficient. The two main uses of smart contracts on NFTs are the following. 

Property of NFTs

Smart Contracts specify what rights of property are specifically licensed to the buyer. Usually, the copyright stays with the creator or author of the digital asset unless it specifies on the contract otherwise. Therefore, it could be said that the license separates the art from the NFT. The buyer usually will have permission to display the art or allow them to make money from them. For example, by creating merchandise using this art. 

However, all these specifications will be displayed and coded into the smart contract. 

Transferability

Smart contracts also ensure and take care of any NFT transferability that takes place between people. Therefore, when there is an exchange of NFT, all the information will be recorded on the blockchain. Also, all the rules and events will be defined on the smart contract. 

More common vulnerabilities of smart contracts

The smart contract audit process identifies vulnerabilities such as the following:

  • Reentry attacks: This occurs when a Smart Contract makes an external call to another untrusted contract. Then, this untrusted contract can make a call to the original contract and make interactions that should not be taking place.
  • Spelling errors: A careful spelling inspection can avoid any misunderstanding in the execution of the code and ensure everything is correct.
  • Integer overflows and underflows: It can occur that during the arithmetic operation of the smart contract, the output exceeds the storage capacity. As a consequence, it can result in an incorrect calculation of the amounts. 
  • Early execution opportunities: The structure of the code of the smart contract should be done properly. Otherwise, it can provide an early warning of the market trade. In other words, it provides information that could give the person the advantage of trade in their favor. 
  • The inefficiency of gas: When trading on the blockchain, there is a commission charged which is called ‘gas’. Some smart contracts are not optimized to reduce the expenses involved with the gas. This results in higher transaction costs and the Smart Contract could be not executed. 

Why is a smart contract audit necessary?

Smart Contract security is a major issue in the blockchain world as inefficiency, misbehavior and security can result in massive and expensive costs. Therefore, there are some main points that an audit of a smart contract can provide business for their protection.

Identify errors

The minimal error in the coding of the smart contract can lead to the loss of a large amount of money. It must be mentioned that transactions made on blockchain are irreversible, making these issues more difficult to solve. This is the reason why the coding of the smart contracts should be audited from the beginning of its development life cycle. Prevention will be more effective and the best option. 

Secure code

It ensures the source code is optimized, meaning it will not only identify code quality issues but it can also identify solutions to make the smart contract code more secure. This is important taking into consideration that smart contracts safeguard digital assets used by millions of people worldwide. Decentralized finance (DeFi) is still evolving and ensuring the codes of smart contracts are secured means NFT creators and investors can evolve alongside without issues. 

Safety funds

The great monetary value that involves smart contracts made them a target for malicious attacks from hackers. Security issues not only result in a monetary loss but could also involve the loss of personal information. This is why taking the necessary precautions with an audit is vital to ensure the funds and your personal information are safe. 

Confidence of investment 

If you run continuous audits of your smart contracts, the developers of the project will be more confident that the code is safe, investors will be more confident that the investment and funds will not be lost and the users can be more confident of the good intentions of the developers.

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