Why Smart Contract Code Audit is (Increasingly) Essential to a Blockchain Project
A smart contract security audit is basically to identify vulnerabilities in a project’s codes and find ways to fix them using varying methodologies or tools as deemed fit by the firm handling the review.
The idea is to ascertain that there are no errors that could jeopardize the funds of the said platform’s users, particularly in an evolving space where financial services — as brought about by the concept of decentralized finance (DeFi) — have exposed digital assets use to millions of people worldwide.
Aside from the security of assets on the Ethereum network where most DeFi protocols run and making sure their blockchain system works, more associated benefits of security audits are becoming obvious as well. Here are some of them:
Separate The Chaff From The Wheat
Doing business in the crypto space has been seeing some subtle but radical changes over time. The days are going — if not gone — when every Tom, Dick, and Harry could just cook up a crypto project plan and run with it. Such starts, of course, with an initial coin offering (or ICO).
The intention for this form of blockchain-based fundraising mechanism is groundbreakingly remarkable. But the scammy projects it birthed were so alarming in 2017 that a post-ICO craze examination by Satis Group suggests that about 80% of the crypto projects at the time were scams. Over time, several reports continue to trickle in about recurring cases of scams even though the volume seems to have reduced.
The Federal Trade Commission notes that Americans lost more than $80 million in crypto-related scams between fall 2019 and the subsequent 12 months. Earlier in 2022, blockchain data firm Chainalysis’ “2022 Crypto Crime Report” still finds that scammers made away with $14 billion worth of crypto from investors in 2021 — a 2x from 2020’s $7.8 billion — and rugpulls (the new form of scam common in decentralized finance (DeFi) in which devs of a crypto project vanish with users’ funds) being pivotal.
So, note that fraudulent projects hardly do a security audit of their smart contracts. What’s the point, anyway? Any project that does should be seen as having something worthwhile to offer — at least for most of them.
Real Projects Are Taking A Cue
New and meaningful projects like D/Bond, a market maker DeFi platform, are taking on the challenge to maintain a pattern. D/Bond, for example, relies on its pioneered ERC/3475 standard for creating a new asset class on the blockchain. It is exploring an uncharted territory to break the barriers of entry to one of the most reliable traditional finance (TradFi) asset classes, bonds with the aim of making it available to as many people worldwide including the unbanked.
For D/Bond and similar projects, it has become pertinent — or somewhat of a standard — for them to ensure the tightened state of their platform’s security — safe from attacks, error, and risk-free to protect value transacted or stored therein. Flaws in smart contract codes have been highlighted to be the major cause of most DeFi protocol hacks.
As hinted earlier, it is no longer just enough for a project website, a (not-so-well) crafted whitepaper, and some cropped profile images of known faces in the industry to save any blockchain project today. Rather, there has to be more in terms of the project’s proposition to an existing problem, use case(s), the team’s profiles, and the community being built around it — including advisors.
Attention is now also being paid to the platform’s security and how fortified its systems are to instill a sense of security in investors and users. The audit helps determine what needs to be done to make there be a correct balance for all stakeholders.
Those are key elements that shouldn’t — and wouldn’t — be traded for anything these days as the industry has grown in its level of maturity from the nascency that defined it a few years back. It is not there yet but a lot has changed so far. Even many prospective investors are no longer gunning for projects to flip their gains overnight anymore but for projects that have what it takes to merit their being identified with them.
Credibility For Partnership Opportunities
Since new and serious projects can’t operate in isolation, they have to rely on partnerships with other forward-looking initiatives particularly those that have been around for quite some time. The idea of such cooperation which could cut across various aspects is usually to help them move faster in their bid to sell their ideas and be recognized in the space for what they have to offer. And to be able to cross this bridge, they have to continually demonstrate some form of credible standing, building trust along the way as they make efforts to open up their agenda through a carefully-planned roadmap that is followed religiously.
It is why a conscientious due diligence process is always recommended to be carried out on either side of such a partnership at an early stage. It is to help determine the trustworthiness of one another and to sum up how most of the credibility issues that may want to arise over time have been addressed at the onset. It bolsters the confidence in a project’s capability not just to succeed but to have a good standing in the industry for a long period of time.
With a security audit in place, there is a fair chance that some of these credibility issues would have been dealt with. It helps speak to the genuity of real projects which have set out to achieve success with their propounded use case(s), build up a team to bring the idea to fruition and labour for months (if not years) to reach a peak.
Then it wouldn’t come as a surprise when they get the “Hey! Have you been audited yet?” question. The request would definitely come up about the project’s code audit particularly if it is a token sale or DeFi-related. It’s as simple a request as it’d seem. But in some cases, would-be partners would insist on the audit before proceeding. They sometimes as for the audit to be carried out by certain firms — you have Quantstamp, Certik, Hacken, Etherauthority, etc.
Also, depending on the nature of the proposed partnership, some go the extra mile to recommend these firms that could help offer such services for a good price and a quick turnaround. These partners sometimes do that because they, too, may have to work with another party (as part of how they plan to deliver their part of a commitment with your project) which requires the code to be provided. See how this is spreading beyond just one project? Well, credibility is at the core. Either way, though, regardless of how unusual the requirement may seem, the code audit is for a mutual benefit as the credibility would boost all parties’ potential in the public eye.
In some cases…
This aspect is still developing: but in some cases, in addition to a security audit being conducted, some prospective partnering projects may require to know and have corroborating documents of a crypto project’s country of legal entity/company registration nowadays. Yes, you read it right. Other projects that want to work with groundbreaking initiatives you are associated with might want to have proof of where the project is registered so as to be sure of its legitimacy and, of course, help determine whether they’ll proceed with the planned partnership. The request wouldn’t be a problem for a truly legitimate project, but the proof has to be provided for the world to know.
For your information, D/Bond recently picked Peckshield which conducts Blockchain, smart contract, DeFi exchange, and digital wallet security audits as its choice for its smart contract audit. Listed by block explorer and analytics platform for Ethereum, Etherscan, as offering top-notch security service for the usability of the entire blockchain ecosystem, Peckshield has previously audited protocols like AAVE, PancakeSwap, and SushiSwap. The firm is also ranked among the top 10 in the Ethereum Bounty Programme which helps identify bugs in the protocols and clients’ projects.
It will conduct a smart contract audit of the D/Bond platform which seeks to bring decentralized bonds using a pioneered ERC/3475 token standard for creating a new asset class on the blockchain and release its findings before the end of May 2022.
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