Smart Contract is “a set of promises, specified in the digital form, including protocols within which the parties perform on these promises.” This definition of Smart Contract was coined when its inventor Nick Szabo incepted the idea back in 1994. Today, this concept evolved as the basis of distributed ledger development, which is the building block of Blockchain technology.
Surpassing blockchain, a specific language emerged for developing smart contracts known as Solidity. Ethereum, a distributed ledger, similar to blockchain is becoming popular.
In plain words, a smart contract is an algorithm. It can execute, verify, enforce and constrain its own operations running on its own instruction. Hence, Smart-contracts is the basis of a distributed ledger. It can be compared as the protocols on which forms the decentralized network. Another definition of a smart contract is “an event-driven program, which runs on a replicated, shared ledger and which can take the custody over assets on that ledger.”
Although distributed ledgers are deemed as a secured network, the technology has loads of vulnerabilities. High profile attacks, especially on the cryptocurrency arena exposed the risks in this technology. For instance, the DAO attack was a direct dent on strength or smart contracts. Apart from exposure to hacking and thefts, smart contracts are prone to bugs. ERC20 token bug the Parity bug are some recent examples. Legal bottlenecks involving smart contracts can be also evaluated.
To remove possible vulnerabilities like bugs and issues in the algorithm of any smart contract, there is an utmost requirement of timely checking and evaluation of the contract. This evaluation is termed as Audit. Clearly, smart contract audit is essential to keep up with the integrity of any distributed ledger.
A smart contract audit is, fundamentally, analysis of the code. It is similar to software testing where bugs and any malfunctioning in the programming are evaluated and discarded. In the current landscape, auditing is done both manually and automatically. In manual approach, the code is examined line by line manually. Audit experts primarily identify the security threats so that the smart contract is secured on a long-term basis.
In contrast, to manual audit automatic audits are fast. Codes undergo sophisticated testing patterns and penetration techniques. For successful auditing, smart contract codes undergo both manual and automated approaches. Generally, manual auditing follows the automated process.
Always a third party smart contract audit service provider analyses the codes. This ensures a thorough review of the codes. It is necessary to audit smart contracts before deployment to ensure a strong network of distributed ledgers.
Performance Validation, Gas Analysis optimization, Vulnerability Identification are the common techniques for smart contract audit. Validation of code involves checking the program to evaluate if it runs as per expectations. It is an evaluation if the code results the expected outcomes. For automatic code testing tools such as Truffle and framework such as Populus are used.