The invention of smart contracts revolutionized the crypto industry back when Ethereum went live. However, it is worth noting that they were given extremely important responsibilities, which smart contract vulnerabilities could seriously endanger.
Smart contracts emerged as self-executing contracts — pieces of code recorded on the blockchain that can execute automatically after their conditions are met. They were a key invention in the crypto industry as they automated countless processes and brought greater levels of decentralization to it.
However, the fact remains that they are code, and no code is perfect. There can always be vulnerabilities that the developers are not aware of, but bad actors might identify. Add the fact that they manage money, as well as the fact that they are immutable and cannot be modified once they are deployed, and that money could be put at great risk.
This is why it is important to keep smart contract vulnerabilities in mind and try to prevent smart contract exploits, which is what this guide will discuss.
Common Smart Contract Vulnerabilities
To start off, let’s take a look at some of the most common smart contract vulnerabilities. This will be a relatively short smart contract vulnerabilities list, but the following can be extremely damaging, not only for smart contracts, but for blockchain development, DeFi security, decentralized applications, and other products that depend on smart contract functionality.
Reentrancy Attacks
The first on the list is reentrancy attacks — a vulnerability where an external contract can repeatedly call back into the original contract before it completes the first execution. As such, it can put a part of the contract in a loop, where it keeps conducting withdrawals of funds, or makes unintended changes in the contract state.
Essentially, an external contract can disrupt the original smart contract, and have it withdraw funds to the external contract, which is controlled by an attacker. The process happens before the contract completes its execution, and concludes that the action has been performed.
One of the best-known examples of this was the DAO hack that took place almost a decade ago, in 2016. Back then, an attacker exploited the smart contract by calling the withdraw function before the DAO (Decentralized Autonomous Organization), an Ethereum-based venture capital fund, could update the balance.
This resulted in 3.6 million ETH being stolen, which was worth roughly $60 million at the time of the attack. But, more than the loss of money, the incident also caused the DAO to lose the trust of community members, and Ethereum had to go through a hard fork to reverse the damage. This was when the network split into Ethereum (ETH) and Ethereum Classic (ETC).
Integer Overflow and Underflow
Another threat comes in the form of integer overflow and underflow. These are known as arithmetic vulnerabilities, and they can happen when a variable goes beyond its minimum or maximum storage limit.
For example, integer overflow happens when a number exceeds its maximum value. Because of this, it wraps around and starts from zero again. Integer underflow is the same thing, only in the opposite direction — the number goes below the minimum value and wraps around to the maximum one.
These smart contract exploits can be used by hackers to manipulate the contract’s conditions and bypass checks. This could allow them to steal funds. For example, if the contract doesn’t check for overflows due to the bypassing of balance checks, attackers could just increase the balance beyond the limit. They could even create logic errors or infinite loops to disrupt the contract’s checks.
Unchecked External Calls
Another type of exploit associated with smart contracts revolves around external calls. Essentially, external calls are something that happens when one contract interacts with another. It can also happen when a contract interacts with an external address.
However, when the success or failure of that interaction is not verified, that is called an unchecked external call. The contract has its own logic meant to be applied in such scenarios, but that logic can lead to unexpected and even dangerous assumptions, creating major vulnerabilities and opportunities to exploit them.
One example could happen if failed calls go unnoticed, meaning that the contract doesn’t check if the external call succeeded, and instead it just assumes that it did. It could incorrectly update the balance, causing a loss of funds, and making the contract inconsistent.
It could also enable the previously discussed reentrancy vulnerabilities, lead to unexpected behavior from external contracts, or endanger blockchain security in some other way.
Denial of Service (DoS) Attacks
Finally, we have Denial of Service (DoS) attacks. This is a type of attack where the smart contract’s operations get disrupted by a hacker, resulting in some functionalities failing or becoming unavailable. At the same time, it tends to block users from using the contract in the intended way.
The DoS attack targeting smart contracts is not the same as the one that targets servers, as this one targets vulnerabilities in the smart contract’s logic, storage, or gas limits, instead of trying to overload it with information requests.
As a result of such an attack, the contract could permanently lock down the funds, become corrupt, or reach its maximum gas limit per block, causing transactions to fail.
Strategies to Protect Against Smart Contract Exploits
While there are plenty of ways to harm a smart contract if adequate vulnerabilities are identified, there are also things you can do to reduce the likelihood of suffering a successful hacking attack. Here are some practical measures to enhance smart contract security that you can employ to improve the odds of fending off bad actors.
Conduct Regular Audits
The first thing to do is to perform regular code auditing. Like any other code, smart contracts can go through security audits. More than that, since the contracts cannot be modified after getting deployed, conducting security audits beforehand is essential for their safety.
Audits can identify and fix vulnerabilities before launch, and by finding as many potential issues as possible, you can reduce the odds of suffering hacking attacks, any of which could have catastrophic consequences.
Implement Proper Access Controls
Another way to protect the smart contracts is to implement proper access controls. This matters because smart contracts manage sensitive operations, often involving large quantities of assets, and so you cannot afford to have access control flaws in place.
Access controls must be strict to keep any unauthorized entities out, and prevent them from exploiting the contract’s functions, messing with contract verification, seizing funds, or manipulating its behavior.
Use Established Libraries & Frameworks
Next, when using libraries and frameworks for building smart contracts, make sure to only use the established ones if you wish to maintain smart contract security.
Developers tend to use libraries and frameworks simply because it is easier, and it can help them avoid some of the more basic errors that could simply find themselves in place due to oversight. Instead, they can use pre-established building blocks, which can especially come in handy when introducing advanced functionalities.
With that said, stick to the established ones as they are heavily audited and tested. They were made to handle the complexities of operations that smart contracts are used for, and they can reduce risks of vulnerabilities, human error, and alike. Plus, they save time and improve security.
Continuous Monitoring & Updates
Lastly, it goes without saying that you cannot just deploy a smart contract and forget about it. While they are capable of operating on their own, they still require continuous monitoring and updates that could be vital for identifying and preventing threats, and in doing so, preventing exploits.
Keep in mind that the blockchain ecosystem is evolving constantly, and rather rapidly. New vulnerabilities are emerging all the time, so you can never truly secure a contract permanently. Instead, you can only apply updates to stay ahead of bad actors and maintain the contract’s security at all times.
Best Practices for Smart Contract Development
In this last segment of the guide, we will discuss certain guidelines for developers to follow during the development process. These are simply things that you should keep in mind to maintain contract security and avoid pitfalls that you do not have to fall into. Given that maintaining smart contract security is already complex enough as it is, here are the things you can do to make things easier for yourself and other developers and users.
Adhere to Coding Standards
When it comes to smart contract development, the best thing you can do to maintain high levels of security is to stick to what works. In other words, use secure coding practices that are well-established, battle-tested, and proven to work.
Doing so will help you maintain high levels of code consistency and improve readability while reducing potential vulnerabilities. This ties in with a previous segment where we discussed using established libraries and frameworks, as it really makes the job easier to simply use the resources that were already tested and they work.
Experimenting with smart contracts can lead to breakthroughs, but this is best done in a controlled environment with smart contracts meant to be experimented with, not those that are meant to conduct an actual role in a larger project. Rather, use tested resources, stick to secure deployment strategies, and you will generally be able to avoid most smart contract vulnerabilities that bad actors typically hunt for.
Implement Fallback Functions Carefully
The next piece of advice is to implement fallback functions carefully. For example, in Solidity programming, there are fallback functions that act as a catch-all mechanism. They get triggered to prevent certain Ethereum vulnerabilities. For example, if a contract receives ETH without matching existing function signatures, or the transaction arrives without any accompanying data.
In other words, fallback functions are useful and can be quite helpful in preventing problems. However, this is only the case if they are implemented carefully. Poor implementation can cause more problems instead of solving them, such as exposing contracts to severe security risks.
Reentrancy attacks are one of the risks associated with poorly implemented fallback functions, but apart from that, you can encounter gas limit issues, various function failures, and alike. The easiest thing to do is to prevent these things from happening in the first place by implementing fallback features carefully and correctly in the first place.
Test Extensively
Just like you must always keep monitoring the performance of a contract, you must also conduct comprehensive and extensive testing. This is considered to be one of the most critical steps when it comes to building a secure smart contract that can be used reliably. Once again, the nature of blockchain is immutable, so there can be no easy patches of vulnerabilities discovered after the deployment. Instead, you must make sure to identify and patch them all ahead of time, and that is why testing is crucial.
Remember to test all aspects of the contract, including unit testing, integration testing, security testing, gas usage testing, and more. All functions and scenarios should be explored and tested, including simulated attacks, such as penetration testing.
Simply put, smart contract testing is more than just a formality — it is a crucial step in ensuring reliability and security, which is why you need to take it seriously, as errors are not easy to fix once the contract is deployed.
Conclusion
In this article, we have discussed some of the most common vulnerabilities and exploits associated with smart contracts, as well as ways to protect against them, and the best practices for smart contract development.
With that said, the best way to go about securing smart contracts is to implement proactive measures — stick to coding standards, use established libraries and frameworks, make sure that functions like fallback are implemented properly, and test everything before deployment.
This is the best way to safeguard against smart contract exploits. Meanwhile, if you wish to learn more about blockchain and crypto, you can check out our other articles, such as the one that explains what exactly security tokens are and how they work, or the one that explains in detail what dApps are.