Since their first mention by Nick Szabo in 1994, smart contracts have come a long way thanks to the blockchain. It is a token of confidence for any crypto enthusiast. Their usefulness is well established, especially in DeFi, where they shine by their efficiency. Determinants in the fundamental analysis of projects, smart contracts must be the subject of a proper review if one wishes to protect oneself from the many malicious acts in the crypto ecosystem.
Nobody is supposed to ignore the law
As it is difficult to imagine a game without knowing the rules, an informed investor cannot commit to a project blindly. It is in this perspective that the analysis of a project via smart contracts remains essential. Also, becoming familiar with the mechanisms of smart contracts in a project guarantees better decision-making in the planned investment.
Smart contracts, or intelligent contracts, are algorithms that store information from a contract and execute its pre-established terms and conditions. They ensure compliance with the contractual obligations of the various parties through the blockchain. Regularly, they are subject to hacker attacks. In effect, small code errors, security flaws can lead to significant losses. We still remember the hack of the DAO on the Ethereum blockchain, which caused him to lose around $60 million.
Blockchain transactions are irreversible. It is important to know the terms of the smart contract, but especially the conditions under which the contract will not be executed. This may involve sending a specific document such as a purchase order or an invoice.
An analysis of smart contracts allows above all a consistency check. In other words, it is a question of verifying that the current information of the project is in coherence with that of the initial code. Thus, when information does not appear in the algorithm, it means that this information simply does not exist.
The analysis of smart contracts within everyone’s reach
At first glance, one may be led to believe that the analysis of a project via smart contracts requires unparalleled technicality. However, the means currently available allow any crypto enthusiast to do well.
Indeed, a first-level analysis of the conditions and logic of smart contracts is easily accessible. The crypto investor has the opportunity to dig deeper through the audit reports or through a trial of contract coding.
The first level analysis
Blockchain users’ need for reliability has prompted some players to implement tools that allow them to inquire about the integrity of projects through smart contracts:
etherscan is dedicated to Ethereum-based projects. However, the Ethereum Foundation does not administer or sponsor this independent platform. All the information concerning the contract is available there for consultation and verification, for example the terms of governance of a project or the number of tokens produced.
dappbay assigns a risk rating to projects that are on the BNB Smart Chain blockchain. They also discuss the reasons that generated this scoring. Below is an explanatory video:
A 360° analysis thanks to audit reports
The other means of analysis is also the audit report of the smart contract. He talks about the intrinsic vulnerabilities of smart contracts and platform security. However, the cost of this service is not within everyone’s reach. Indeed, it requires having thousands of dollars at its disposal. In addition, the audit report generally brings a sign of reliability when the projects have it.
However, it is still necessary to read the audit report when it is available. The presence of certain smart contract audit professionals often brings more integrity to projects. This is the case of: Certik, Chainsulting, OpenZeppelin or ConsenSys Diligence.
An analysis by testing the coding
This kind of analysis is the preserve of seasoned crypto enthusiasts in coding. Do not venture on this ground a neophyte. They call on specific skills with regard to the code in the blockchain. Several platforms are specialized in this aspect of the analysis. They make it possible to determine whether the smart contract contains bugs or security vulnerabilities. These include, for example, HoneyBadger, Maian, Manticore or Mythril. A more simplified method of analysis makes it possible to check the insertion of malicious functionalities in a smart contract. This is the review of imports. Imports are functions added so that the main code is structured to integrate the logic that is the subject of the contract. The objective is to save time by avoiding recoding a function that is already available.
They usually come from smart contract libraries like OpenZeppelin. This platform systematically ensures that information is audited and secure. As a result, functions from OpenZeppelin are considered reliable in the blockchain.
Sometimes the developer can locally add functions. In this case, it is up to any analyst of the contract to verify that the information in this function does indeed correspond to that in the main code.
If you want to know more about imports, do not hesitate to consult the thread below:
In short, reviewing a smart contract is an integral part of the fundamental analysis of a project in the same way as consulting the white paper or getting to know the team in charge. Smart contracts are gaining in sophistication day by day. Moreover, attention should be given to oracles. These make the connection between the blockchain and the real world. In other words, they allow access to external systems that provide or extract information to smart contracts, for example the price of a crypto or the fluctuations in the price of an asset. Thus, a project analysis is not to be taken lightly, because a warned man will always be worth two.
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