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How to Prepare for a Smart Contract Audit

The crypto industry is growing rapidly, with market capitalization and TVL numbers creating new records every month. As projects find innovative applications of blockchain technology, they continue to create value for the ecosystem and inadvertently handle a significant amount of user funds. 

As a result, the need for security of the funds and the integrity of the project’s application becomes paramount. After all, who would want to use an application that doesn’t work right or store funds in a platform that can’t assure its safety?

Any lax in the security or integrity of the application can have disastrous results, as proven by many hacking incidents and exploits over the years. As we all know, decentralized applications are driven by smart contracts programmed to execute certain things when a set of parameters are met. 

These smart contracts are essential for the functioning of any application, and ensuring the quality of these contracts will determine whether the application will function as intended or not.

Determining the functionality and security of smart contracts is where Smart Contract Audits come into the picture. These audits can be performed in-house or by third-party organizations. 

The use of a reputed third-party organization is always preferred over or in addition to internal audits to ensure an objective analysis while at the same time contributing to the project’s credibility.

Getting Ready for the Smart Contract Audit

Once a project’s team finishes developing its blockchain application, the members would like to ensure that everything works as intended and no surprises are waiting around the corner. 

So, they subject the underlying smart contracts to an audit process. They generally hire the services of a blockchain security audit firm, which in turn assigns the project to an auditor.

As a smart contract auditor, the best way to deal with the audit processes in a composed manner, irrespective of the years of experience, is by following a checklist. The checklist provides the necessary step-by-step guidance and ensures that the auditor doesn’t miss out on anything important.

The Smart Contract Audit Checklist

The entire smart contract audit process can be divided into a handful of distinct phases with one or more auditors at the helm. The first phase is the preparation phase. 

It is the most important step as it forms the basis of the entire audit process. During this phase, the audit team aims to get as much information as possible from the client in the required format for objective analysis of the smart contracts.

Step 1: Understanding the Project

In this step, the audit team will request detailed information about the project from its developers. The information includes detailed documentation about the project, including the components and technologies used. 

The development team should be able to describe the utilized smart contracts and their functionalities in a simple and easily understandable fashion.

Step 2: Setting up a Development Environment

Armed with the information provided by the project founders, the audit team will set up a development environment with all necessary software packages to suit the technical configurations of the project.

Step 3: Access to the Code

It is time to view the actual code with the development environment set. It is ideal to request the project developers to provide the team with access to the code over any widely used repositories like GitHub, Bitbucket, GitLab, or others. Ideally, the client should provide a clean codebase with proper formatting configured as per the conventions for easy understanding.

Unfortunately, not everyone in the industry is well-organized. There are times when the codebase is in an unstructured repository or over blockchain explorers like EtherScan, BscScan, etc. 

So, it is always advisable to communicate the expectations at the beginning of the exercise and how they can impact the overall score.

If the developers fail to meet the guidelines, the audit team should discuss the impact of their actions on the final score before accepting the submission.

Step 4: Verified Scope of Audit

Not all audits are equal as some clients may want their entire project audited and others just a portion. To ensure that the audit team focuses only on the task at hand and does not execute tasks beyond their purview, a verified audit scope should be prepared and shared with all the auditors involved.

Creating a Verified Scope of Audit: The scope of the audit document will include the following information.

– Repository link

– Branch Name

– Commit

– Path to contracts that need to be audited

One can eliminate the mention of paths to contracts if all the contracts in a particular repository need to be audited.

However, there are times when a repository may contain critical code beyond the audit scope. In such cases, the same needs to be mentioned in the audit report stating, “This audit covers only contracts from the scope section. Therefore, the repository contains contracts out of scope and cannot be verified.”

Step 5: Access to Functional and Technical Requirements

The functional and technical requirements are usually included in the project documentation delivered by the client during Step 1. The functional requirements explain every function performed by the smart contracts in a simple, clear language. 

Meanwhile, the technical requirements make up all the technical and non-functional requirements, such as programming languages, technologies, deployment instructions, test cases, etc., for each smart contract to be audited.

With most projects using multiple smart contracts, there are bound to be cross-contact dependencies. These dependencies should be charted, and auditors should analyze their effects on other smart contracts. In addition, auditors should ensure that the client provides these cross-contract dependencies diagrams and system role descriptions.

Step 6: Access to Unit Tests

Smart contract audits involve thoroughly testing the contracts by subjecting them to all possible scenarios. While the audit team usually creates its test cases, getting a set of unit tests from the development team will help in a better understanding of the code. 

These unit tests will help the auditors look at the contracts from a developer’s perspective, effectively contributing to additional validations.

Once the audit team completes the preparation phase, they will be better equipped to analyze every aspect of the smart contracts subject to audit. 

Starting with reviewing each line of code, the team will run the contracts to a series of manual and automated testing tools. Finally, the audit team will analyze the resulting data for issues that will be classified based on the severity in the report. 

The audit report will also include recommendations for bug fixes and any other necessary changes to enhance the security and integrity of the smart contracts.

An audit report’s ratings for a project consider more than just the code. The quality of documentation, adoption of best coding practices, efficient communications, and other factors also make or break the project.

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