Smart Contract Threats & Fixes: Protect Your Blockchain Now

Blockchain technology is the most innovative application among smart contracts, or self-executing contracts whose terms of the agreement are written directly into code.

Transactions are encrypted without any need for intermediaries where transactions are decentralized, automated, and transparent. But smart contracts, like most software, are not perfect.

As code that directly controls transaction execution, vulnerabilities can result in substantial financial loss, denial of service, malfunctions for the system, or permanent damage to the ecosystem.

Given that blockchain adoption is only going to grow further, specifically in the context of finance (DeFi), insurance, and supply chain management, it’s necessary to comprehend the sorts of risks smart contract vulnerabilities pose and how to sidestep them.

In this article, we explore these vulnerabilities, what types of attacks are common, and what can be done to secure your smart contracts.

What Are Smart Contracts?

If you want to keep your contract terms strictly enforced by a third party, then this is a smart contract, a program stored within the blockchain that will automatically enforce and verify the terms of that contract.

Most commonly written in languages like Solidity for Ethereum and other blockchains that support decentralized applications (apps), they are opaque to the public and programmers unfamiliar with the technology.

The benefits of smart contracts include the ability of these contracts to bring trustless transactions and automatically execute agreements once agreed conditions are met in the predefined.

Though smart contracts have their benefits, they also carry risks because their code is publicly available and unmodifiable at deployment. 

Common smart contract vulnerabilities

These smart contract vulnerabilities occur due to mistakes in design, coding errors, or leaving out security risks. The first step to mitigating them is understanding these threats.

1. Reentrant Attacks

There is something called a reentrant, and it happens when you call a contract, and the contract you called then recurs back to the calling contract before the first execution is complete.

This attack type leverages the vulnerability that allows the attacker to execute malicious logic (or drain funds, as the case may be) multiple times before the state of the contract is even moved.

Example:

Output:

In both cases from 2016, the infamous DAO hack and the 2018 Central Games hack, an attacker exploited a reentrant vulnerability in the smart contract, allowing them to recursively call withdrawal, causing millions of dollars worth of Ether (ETH) to be drained.

Mitigation:

• Checks-Effects-Interactions Pattern: Following the checks-effects interactions pattern is a well-established best practice. This involves: 

1. Checking (and validations of) inputs.
2. Updating the contract’s state.
3. Calling another contract or writing into another contract and transferring funds only after the state is updated.

• Use of Reentrant Guards: A well-known reentrant guard uses a modifier in many contracts that prohibits recursive calls.

2. Overflow and Underflow of Integer

An integer overflow is when an operation that exceeds the allowed value of the data type we are using is performed. (e.g., uint256). Like this, also an underflow occurs when a value is below the minimum limit. While these issues do not always lead to unexpected behavior like incorrect token balances or balance manipulation, they also bypass the contract’s logic.

 Example:

Output:

The attacker can create discrepancies if they can make a token balance go into the negative and get more tokens than allowed, which causes financial loss or compounds the system.

Mitigation:

• Safety Libraries: Popular libraries like Safety are used to avoid implementing addition and subtraction functions for arithmetic that have been already created to be safe. Safety automatically overcomes the limitation of overflow and underflow, widely considered vulnerable in typical arithmetic operations.
• Solidity 0.8+: From Solidity 0.8, these vulnerabilities are not truly eliminated; the compiler already includes built-in overflow and underflow checks that can mitigate risk.

3. Unchecked External Calls

It is also worth emphasizing that the use of other contracts or external services (oracles) can be attributed to the most frequently used components of smart contracts. If these external calls are not handled properly, there is a risk, and this is especially true if the contract doesn’t verify the results of the external function or contract call. 

Example:

Output:

An unchecked external call to data, withdrawal of funds, or disruption of a contract greatly increases an attacker’s ability to cause harm.

Mitigation:

• Input Validation and Output Verification: Validate any input or output coming from an external contract. Make sure you have your externals audited and trusted.
• Limit Trust on External Data: Try not to place yourself too much in the danger of external calls of critical logic. To work with data, it is recommended to use multiple or off-chain solutions because the data that is used is correct.

4. Access Control Issues

When there’s a lack of proper control over who can execute which functions in a contract, this is where access control vulnerabilities come These crimes usually emanate from people executing functions that they should not; a criminal can transfer, withdraw, or embezzle money if they do not have access controls that are properly assigned.

Example:

Output:

There is an administrative aspect of a contract that will allow a certain address to withdraw money. Any user can invoke this function without proper access control, and this could steal funds.

Mitigation:

• Role-Based Access Control (RAC): You can use the RAC to let the authorized addresses (or users) call some functions only. Restrict access by use of modifiers like onlooker.
• Multisignature Contracts: Multisignature (multiset) wallets are good for critical functions where multiple parties must all agree on a transaction or change in state.

5. Gas Limit and Block Size issues

The computational work in Ethereum and similar blockchains is measured in gas units. Sometimes, all this gas consumption can cause a contract’s function to fail to execute, resulting in errors and transaction reverts. This is much more troublesome when contracts interact with other contracts or when one of the worst things happens: complex computations. 

Example:

Output:

Finally, many smart contracts that require excessive gas to execute will fail when the network’s block gas limit is reached or if the user’s gas limit is exceeded. Membership of this group can result in a denied transaction with loss of money or user inconvenience.

Mitigation:

• Gas Optimisation: Smart contract function optimization: no unnecessary loops, simple data structure, and low computational complexity.
• Estimate Gas Before Transactions: Always try to estimate the gas required for calls before execution, such that it fits in the gas limit of the block.

6. Front-Running Attacks

Front running is an attacker looking at the pending transaction on the blockchain; once they see it, they submit a transaction with a greater gas price, and it runs ahead of time. In the decentralized finance (DeFi) protocols, this can be particularly harmful as an attacker can take advantage of arbitrage opportunities or encourage the sequence of transactions. 

Example:

Output:

In a decentralized exchange (DEX), someone could create a large trade that changes the value of an asset and then front-run the trade by creating a trade with a higher gas fee to execute first before the first trade shows up.

Mitigation:

• Transaction Ordering Mechanisms: There is a front running arising from information leaks in the market; thus, use methods like commit-reveal schemes or even time constraints.

• Slippage Control: Provide users the ability to set their slippage limit above which their transaction won’t execute.

7. Poorly Designed Genomics is the design of an economic model and incentives around a token. Inadequate genomics can kill adoption, though, in the form of inflationary pressures, manipulation, or ‘pump and dump’ schemes.

Example:

Output:

A token contract with bad genomics might allow the users of the token to mint an infinite number of tokens with the consequence of superinflation and value destruction.

Mitigation:

• Limit Token Supply: You can define how many tokens will be fixed supply, or you can define a cap for the number of tokens to be given.
• Audit Genomics: Think about genomics (how the token is created, distributed, burnt, and governed) and how these factors can be designed correctly: reward for staking, inflation, and governance mechanism.

Mitigating Smart Contract Vulnerabilities: Best Practices.

1. Code Audits

Comprehensive code audits are among the most useful ways of identifying vulnerabilities in smart contracts. Bugs, security holes, or inefficiencies in the contract code will be found by professional auditors on the contract’s code. There are a few things, for example, Consensus Diligence, OpenZeppeli, and Trail of Bits, that specialize in smart contract auditing and vulnerability testing.

• Automated Analysis Tools: RUA n static analysis, with help from automated tools such as Myth, Slither, or Doyenne, of course, to identify common vulnerabilities aside from manual auditing.

2. Formal verification of a smart contract means that you prove mathematically that the smart contract code behaves as expected. It takes the logical and the formal approach to show that the behavior of a contract is the same under every state under which it was intended to be.

• Tools for Formal Verification: For formal verification of smart contracts, you can use tools like K Framework and Certara.

3. Continuous Monitoring

Despite this, after deployment, smart contracts should still be checked for unusual activity, such as abnormally high amounts of transactions or bottlenecks causing execution attempts to fail. Monitoring it can tell us if we can prevent an attack from causing serious damage now.

• Event-Driven Alerts: Set up alarms for such other activities as big withdrawals or odd functions being requested.

4. Limit Contract Interactions

Keep smart contracts as simple and with as few interactions as possible for inside systems. The attack surface gets bigger as attacks flow through complex systems of interacting contracts.

• Keep It Simple: Keep smart contracts simple and modular with a limited number of core functions with the principle.

5. Upgradability and Patch Management

Once a smart contract is deployed, it’s usually immutable. But sometimes vulnerabilities need to be fixed once we deploy. Proxy contracts and upgradeable contracts allow updating of the contract’s logic securely and controlled without losing data or state.

• Upgradeable Patterns: Secure contract upgrades can be done with established patterns, like the proxy pattern.

Conclusion

A new smart contract, as a product of blockchain, introduced decentralized and automated interactions with inherent transparency. However, these possess a significantly small voting power and are highly susceptible to risks, exposing the blockchain networks to vulnerability and instability.

 By knowing the common threats like reentrant attacks, integer overflows, and access control issues, developers can learn how they can step up with proactive steps to cut off these risks.

To make smart contracts secure and trustworthy, continuous monitoring starts with code audits and, failing that, formal verification of state-of-the-art best practices.

With the expanding use of smart contracts, developers, auditors, and generally the blockchain community must be vigilant in uncovering, suppressing, and fixing any vulnerabilities.

Being proactive in a security-conscious mindset states that following best practices will help us preserve the integrity and the future of blockchain ecosystems and the applications that will run on top of them.