Smart Contract Security in Blockchain and DeFi

In this article, we are going to explore what is smart contract security? and the usability of it in the Blockchain and Defi area.

If you’re going to design, build, or maintain smart contracts in Ethereum, what are the most important security considerations?

What would be an attack against your smart contract and how could you prevent it? These questions are explored in depth by experienced blockchain developers.

The smart contract is most secure if the programmer is knowledgeable in this field, public open-source blockchains as net positive, vs private blockchains.

What is Smart Contract Security?

Smart contract security has become a hot topic of conversation recently, and it doesn’t seem like interest in the field will slow down anytime soon.

After all, these are the computer programs that not only form the backbone of blockchain systems but which also have the potential to drastically change the way that businesses handle transactions and data storage on a global scale.

However, the popularity of smart contracts has also made them an attractive target for hackers and other malicious parties who want to get their hands on the money that’s being stored or exchanged using smart contracts.

Cryptocurrencies and Blockchain-based applications operate in a semi-trusted environment, where the trust needs to be established within (and across) networks of untrusted participants.

Several technologies have been proposed and developed over time, in order to establish secure environments for transactions with high levels of confidence.

One of these technologies is called smart contracts which deals with self-executing contractual states, stored on a blockchain or replicated in a distributed ledger system without requiring any central authority or third-party enforcement mechanism.

Related Article: Top 10 Applications of Blockchain in Healthcare

How Do Smart Contracts Work?

A smart contract is an agreement between two or more parties (represented by digital addresses) that execute when certain conditions are met.

For example, a smart contract may instruct someone to pay you when they receive goods they bought from you, release the money to your bank account when they’ve fulfilled their end of a bargain, etc.

Think of a smart contract as an open-source program that runs on a shared, public ledger.

The ledger records every interaction or transaction that happens on it and uses complex coding to ensure each transaction can only be executed when certain conditions are met.

These transactions automatically execute without any human interference and can’t be modified once they’ve been initiated.

It all sounds very sci-fi but there are some practical applications for smart contracts in our world today.

Plus, if you’re considering building your own blockchain platform, understanding how smart contracts work will help get you off on a solid footing (pun intended).

Related Article: What is a Smart Contract for Cryptocurrency?

How Can I Protect My Smart Contracts?

As a smart contract developer, it’s important to be aware of existing vulnerabilities, and more importantly to understand how you can guard against their exploitation. Here are five ways to protect your contracts from hackers and other threats.

Use strong, unique passwords: One easy way to keep your contracts safe is by using strong passwords that require a certain level of expertise (or time/resources) to break.

Make sure they contain uppercase letters, lowercase letters, numbers, and symbols and are hard for others to guess.

Smart contract security is a big concern for blockchain developers. It’s important to understand how to write smart contracts securely, as well as what tools are available to secure smart contracts in various environments.

Related Article: How does the Blockchain Work? – Smart Contract, Ethereum

Types of Smart Contracts

Smart contracts can be classified into two broad categories: Non-Turing complete smart contracts, and Turing complete smart contracts.

Non-Turing complete smart contracts are simpler than Turing complete ones, and in turn, are easier to secure.

However, in certain circumstances (as will be discussed later), Turing complete smart contracts offer significant advantages over their non-Turing complete counterparts.

Thus, it behooves one to understand both types of the smart contract before embarking on a mission to secure them.

Types of Attacks against Smart Contracts

Before outlining possible defensive measures, it would be better to categorize smart contract security attack types.

Since an attacker can leverage different resources and attack mechanisms to compromise smart contracts, we group them into four basic categories as follows:

  1. Resource-Based Attacks
  2. Mechanism-Based Attacks
  3. DoS Attacks
  4. Logic Flaws.

It’s important to understand these types of attacks are against smart contracts, those against an individual contract, and those which impact a chain.

Attacks that target a single contract can take place on their own or as part of a larger assault on multiple contracts.

Such strikes may seek to utilize information gained from attacking one contract in order to gain leverage over another.

These may include Sybil attacks, which depend upon controlling many nodes in order to attack many contracts at once.

Also possible are races between attackers who each attack a particular contract before any countermeasure can be enacted by its owner(s).

Such strikes require having already gained some type of leverage against you, perhaps your address has been exposed through either error insecurity or poor operational practice on your part.

Depending on these different attack types, there are various defensive measures that developers can employ when writing smart contracts.

Smart Contract Security and Most Common Mistakes

First, we need to understand what a smart contract actually is, Simply put, it’s a digital contract whose terms are written in computer code and stored in a blockchain as opposed to paper.

In order for that contract to be executed, all parties involved must first agree on all of its conditions and sign off.

It is both enforced by technology and agreed upon by multiple people in an unalterable way meaning that once something has been added to a blockchain, it will forever remain there.

The best example would be something like government systems or financial services where vital information needs to remain secure yet readily available for authorized individuals or businesses.

When dealing with smart contracts, it is important to keep some things in mind when programming.

It is best to create a smart contract that will be simple enough to reduce any potential errors.

If your smart contract is going to be part of a larger system, make sure that you do not place unnecessary requirements on it.

This can result in future problems if something changes, Your smart contract should not require specific values or certain data feeds unless those are explicitly defined within its scope, Avoid using external calls within your contracts as well.

Smart Contract Security in Blockchain

When a transaction occurs on a blockchain network, it’s an immutable record for all to see.

This means that every person involved in a transaction can read its contents, from title and description to buyer/seller info.

All of that information could be vulnerable if there are any holes in your smart contract’s code.

Bugs aren’t always malicious, they happen due to simple human error, You know you’ve written a good program when even when you look at it, you still can’t find errors.

Related Article: Blockchain Wiki: The Future of Online Transactions

Smart Contract Security in DeFi

The public, open-source nature of DeFi systems will have a number of implications for smart contract security.

First, it will make it easier to work on research as anyone can submit pull requests or fix bugs themselves with limited bureaucracy.

As a result, it should reduce operational costs compared to working in other settings with more traditional contracts that rely on legal arbitration procedures.

It could also make verification easier because everyone can audit code rather than relying on just one party to do so.

However, if people don’t understand how something works or want guarantees about its behavior, then they might still use outside auditors like they do today.

Digital financial infrastructure has always been a driving force for innovation, Unfortunately, security concerns related to blockchain smart contracts have slowed it down.

This is why we should give those open-source blockchains more consideration than private blockchains. Let’s take a look at how some of these protocols can be exploited by hackers.

Related Article: What is Decentralised Finance (DeFi)? – Future of Finance

Blockchain Programming Languages for Smart Contract Security

Solidity is a programming language that was specifically created for Ethereum. Therefore, it’s best to learn Solidity as your main language for Smart Contracts if you are developing on Ethereum.

If you are trying to develop on another blockchain or for another project, it can be good to know other languages as well, These other languages include Haskell, Plutus (for Cardano), and LLL (for R3 Corda).

Smart Contract Security based Platforms

NEM and Ethereum are two popular platforms that offer developers robust smart contract functionality.

While both platforms have evolved over time, they each boast a long list of advantages and disadvantages.

NEM is a second-generation blockchain project whose core blockchain has not been forked since its launch in 2015.

It provides a JavaScript-based smart contracting platform for use within private or public blockchains.

Ethereum supports more programming languages (Solidity, Serpent, LLL), however, it suffers from a higher number of attacks due to a high level of abstraction to construct smart contracts.

As a result, over 160 vulnerabilities related to solidity were found in 2016 alone. All these facts mean that there is much scope for further research and development in secure execution environments for smart contracts deployed on blockchain systems.


Where to Go from Here This area is still emerging, but it’s important for smart contract developers to begin incorporating security best practices into their code.

It’s also good advice for everyone who uses smart contracts in production systems: If you think you might use a smart contract in your application, ask yourself whether you’re comfortable with giving that control over something valuable (like your business) to an external piece of software and if not, start looking at alternatives.