Digital assets, including cryptocurrencies and others supported by blockchain technology, are famous worldwide. Blockchain technology has made a real revolution in many areas of activity. It is used in information technology, the sale of services and goods, legal practice, healthcare, and the public and banking sectors. It is a transparent technology that increases the transparency of the entire supply chain and contributes to achieving the maximum level of transaction security.
But there is a problem. The famous hacks of well-known blockchain applications can slow down the development of the blockchain. Therefore, the audit blockchain process is essential to find bugs, prevent risks, and detect vulnerabilities. Thus, you can ensure the complete security of transactions.
What Do You Know About Blockchain Technology?
Blockchain technology is a mechanism that allows organizing the open exchange of information within a business network. The blockchain database stores all the necessary information in blocks linked together in a single chain. It is available to use blockchain technology to create an immutable or perpetual ledger for tracking orders, payments, financial statements, etc. The blockchain system prevents unauthorized entry of transactions and creates maximum consistency in the overall view of transactions.
Сonsensus mechanism
Blockchain technology’s heart is a consensus mechanism that dictates how parties reach an agreement on transactions to be added to the global blockchain network. The auditor learns the transactional information, evaluates the susceptibility of the blockchain consensus algorithm to attacks, and analyzes whether someone can create an unauthorized transaction or otherwise compromise security.
Accepting a transaction on a trusted blockchain is sufficient audit evidence for specific financial statement assertions.
What is a crypto audit process?
Blockchain peer-to-peer networks consist of multiple nodes that keep all transactions with digital assets made by network participants in a particular blockchain ledger. A blockchain audit conducted by a professional uses automated error detection tools.
The purpose of a blockchain audit is to identify publicly known vulnerabilities and manually perform a structured and systematic analysis of the code of a blockchain project. As a result, blockchain audit reveals errors in the code.
Blockchain audit stages
Blockchain audit is a serious process that a professional auditor must carry out. Consider the main stages of a blockchain audit:
- Blocking the source code – in auditing a smart contract, you should block the version of the source code. It can ensure transparency in the audit process.
- Deep understanding of the blockchain project – engaging external auditors to audit your blockchain project. Familiarization of service auditors with the project’s main features.
- Analysis of various documents, studying the project architecture, business requirements, technical documentation, and critical components of the target system.
- Static code analysis made by the auditor, which is necessary to find bugs and detect errors
- Code preview – repeatedly checking the code, detailed code quality analysis. The main focus of this is on the structure of the code.
- Vulnerability analysis includes variable shadowing, reentry, incorrect cryptographic signature verification, Random number generation in an insecure way, etc.
- Thorough and qualitative analysis – blockchain audit specialists check whether the code will provide the necessary functions.
- Detailed tracking and reporting
- Elimination of identified vulnerabilities. At the end of the blockchain audit, a detailed report is compiled, and the vulnerabilities and errors found in smart contracts are eliminated.
Blockchain audit is essential for companies that want to minimize risks as much as possible, eliminate possible system vulnerabilities and guarantee the security of transactions.
Why should a project apply for a blockchain security audit ?
Hackers can exploit weak spots in the assets of companies’ clients. Blockchain audits are used to prevent these specific risks. In addition, a blockchain audit can be a crucial indicator for investors interested in developing cryptocurrencies in the future.
Security audits help protect sensitive data, identify security vulnerabilities, and test the effectiveness of security strategies. In addition, regular audits can help ensure that employees adhere to security practices and can discover new vulnerabilities. You can perform a security audit monthly, quarterly, or biennially. However, it is better to complete the blockchain audit process not less than twice a year.
Smart contracts and blockchain code audit
Blockchain applications use smart contracts, which sometimes have significant security vulnerabilities. The managing director should include a blockchain audit in the project plan. Mistakes in smart contracts happen. The task of internal and external auditors is to identify and correct errors in the smart contract before they get into the production environment and cause harm to security.
What are smart contracts?
Smart contracts are computerized transaction protocols created to fulfill the terms of a contract. Primarily, smart contracts are designed to address standard contractual terms while reducing occasional exceptions and the involvement of intermediaries.
To prevent smart contract errors from entering the blockchain production environment, the auditor should conduct a high-quality audit, including code verification, testing, etc.
Verification of digital asset transactions
The auditor assesses the susceptibility of the blockchain consensus algorithm to hacker attacks. Can double-spending happen? Can someone create an unauthorized transaction? Recording a transaction on the blockchain does not reduce the risk that the transaction is fraudulent, illegal, or unauthorized.
Reliability check. An account ID is a sequence of letters and a number in a digital asset environment. Blockchain technology allows legal entities and individuals to maintain control over their funds. The auditor checks the existence of digital assets and whether the client has control over the identified wallet.
Completeness check. The balance presented in the financial statements should generally match the list of wallets provided by the client. The auditor evaluates whether controlled wallets are erroneously or specifically excluded from the books and records.
Accuracy Check: Blockchain is immutable and cannot be edited. Recorded transactions or events may still be inaccurate due to human input error.
Blockchain technology & audit process
A blockchain is a distributed ledger dispersed across multiple computers. A quality audit blockchain is essential to ensure that the financial statements are free from material misstatement. A systematic and structured code review of a blockchain development project is needed.
Blockchain solutions can increase security and transparency. But they can also entail a host of new financial reporting challenges. Blockchain audit allows for detecting errors in time and corrects them not to create security threats. The prospects for the development of blockchain and the penetration of cryptocurrency into various fields of activity are enormous. With a skillful approach to solving security problems and a deep understanding of blockchain systems’ advantages, it is possible to benefit significantly from the possibilities of blockchain technology.
FAQ
A blockchain audit is a thorough, systematic, and structured analysis of the blockchain code managed by an audit specialist. Structured code review is done manually. The process usually involves the use of static code analysis tools. In addition, specialists carefully check the code for errors.
The auditor gets acquainted with the features, architecture of the project, and technical documentation. Then the auditor conducts a statistical analysis of the code, analyzes the quality of the code, and identifies vulnerabilities, which are then eliminated. It ensures the security of transactions.
The duration of a crypto audit can range from one or two days to several weeks or months. The main factors determining the time of a token audit are the complexity and size of the project.
For a high-quality blockchain audit, you must experience blockchain technology, cryptocurrencies, and their audit. In addition, you also should have a profound understanding of blockchain technology. Alas, many auditors may have little or no experience and therefore may not fully appreciate the risks and issues when auditing elements.
It is essential to make blockchain audit for the company by internal and external auditors to ensure safety and prevent different risks. Blockchain code audit involves a thorough analysis of errors, which helps to ensure the security of your data. Blockchain audit includes:
– Threat modelling that detects data changes and allows you to detect DDoS.
– Exploiting the identified vulnerabilities to assess the scale of potential threats that the tested project may face.
– Successful elimination of identified vulnerabilities.
A Blockchain Validator performs a validation process by verifying that transactions are legal. In addition, the validator must make sure that transactions are transparent, not malicious, and so on.