What are smart contract audits?

Smart contracts have become a game changer in the rapidly growing blockchain and decentralized finance (DeFi) industries. These contracts are self-executing, which means that the terms of the agreement are built directly into the code, in which simple procedures are included that eliminate the need for mediators. However, it is critical to ensure that smart contracts are safe and well-functioning. This is where smart contract auditing comes in. In this post, we’ll look at what these smart contract audits are, why they’re necessary, and how they’re done. 

Comprehending smart contracts

Before we discuss further the actual auditing process, it is important to understand what smart contracts are. Smart contracts are only executed when predetermined conditions are met accurately and are programmed on blockchain technology. They are used to automate the implementation of an agreement so that all parties are immediately aware of the outcome, without having the need for an intermediary, or without any delay. Some of the common use cases include financial transactions, supply chain logistics and legal agreements. 

Key Features of Smart Contracts

  1. Self-Executing: Smart contracts are implemented automatically when the code conditions are met accurately.
  2. Permanent: Once established on the blockchain, these smart contracts’ code cannot be changed or altered, ensuring consistency with security which is one of the primary features of smart contracts.
  3. Decentralized: These contracts run on a decentralized network, in a decentralized blockchain network, no one needs to know or trust anyone. Each network participant has a distributed ledger containing exactly the same data. If a member’s ledger is altered or distorted in any manner, the majority of network members will reject it. Centralized authority is not needed.
  4. Transparent: All transactions are visible on the blockchain, and contract terms are crystal clear, ensuring clarity of transactions which is desired for any financial or correspondence transaction. There are some good reasons why smart contract audits are a must, this means checking what the contract does and what it should do in all situations, including the strange one that could come up with errors that need to be rectified before implementation.

Why are smart contract audits important? 

Even though smart contracts are powerful enough, they are also susceptible to vulnerabilities and errors. As they often handle significant amounts of financial transactions, there can be a significant financial loss if there are any minor/major errors in the code. Here are some reasons why smart contract audits are essential: 

  • Security: The primary aim for conducting a smart contract audit is to ensure its security. Auditors will look for flaws that could be exploited by malicious actors also known as cyberthreat actors. This is very crucial because once a smart contract is deployed on the blockchain, it cannot be altered. 
  • Functionality: Audits are also used to verify that the smart contract is compatible with the purpose. Which means checking that all scenarios and edge cases are handled correctly with precision, and that the contract performs the desired actions under all mandatory conditions that need to be met accurately. 
  • Compliance: Certain rules and regulations should be followed in some areas, when it comes to deploying these smart contracts. Audit(s) needs to make sure that the contract follows the law. Compliance issues in smart contract auditing may include issues relating to legal recognition, data privacy, and jurisdictional disparities. 
  • Trust: An audited smart contract is more likely to be trusted by users and investors. It shows the commitment with regards to safety and reliability of the people who make them, which can be an advantage in the competitive blockchain space. 

The Smart Contract Audit Process

The audit process is methodical and thorough, there are usually a few important steps: 

1. Understanding the Contract 

Before the auditors actually begins with the process, Audit engineers should try to understand the real purpose of the smart contract and how it will be used. The auditor should collaborate with the development team to find out what the purpose of the contract is and how it works. 

2. Automated Analysis

The first technical step in the audit process is usually an automated analysis. Auditors use special tools (static and dynamic – such as Slither and Consensys MythX) to scan smart contracts. These tools can be used to detect the presence of inefficiencies/vulnerabilities and coding errors. Although automated technical analysis is only a preliminary step because it cannot detect all possible problems, but it is an important step that cannot be neglected. 

2.1 Key Tools: 
  • Static Analysis Tools: This tool analyzes the code without executing it, checking for syntax errors, bad coding practices and emerging issues. 
  • Dynamic Analysis Tools: These tools allow one to check the code in a controlled environment to observe its behavior and identify runtime issues. During this phase, the auditor will examine each line of code in detail and test different scenarios to ensure that the logic is appropriate. This quality review will help to ensure that the smart contracts work perfectly and follow best practices. 
2.2 Key Activities: 
  • Code Walkthrough: The auditor should review the code to understand the structure and flow of the code. 
  • Scenario testing: Test various use cases and scenarios to ensure the contract works correctly in all scenarios. 
  • Best Practices: Ensure your policies align with industry best practices and standards.

3. Manual review

  • It is more important to have people skills in the review process. Experienced researchers need to analyze the code to identify problems that the automated tools may miss. This process should consider the logic of the contract, test different scenarios, and ensure that the rules follow best practices.  

4. Testing

Testing is an important and critical part of the audit process. Auditors run through a bunch of different tests that usually include unit tests, integration tests, and simulations using environments that look like the real world. This thorough and adept testing helps to figure out how the smart contract will behave in different situations to make sure it works well before it is finally implemented to avoid losses later. 

4.1 Key Testing Methods: 
  • Unit Testing: Primary objective is to test the individual components or functions of the contract in order to make sure they work as planned. 
  • Integration Testing: It is done to test how different parts of the contract interact with each other. 
  • Simulation Testing: The main aim is to create a simulated blockchain environment to test the contract’s performance under realistic conditions in different situations and environments.

5. Reporting Findings

Once the audit review is complete, the auditors’ next task is to immediately create a detailed report with a list of the defect(s) they see, the problem, recommendations, and changes. Measures need to be taken to solve these problems. It also shows where the smart contract runs without error(s), so we can get a balanced view between its security aspects. Let’s have a look at the overview of findings and critical issues:  

– Detailed list of inefficiencies/issues, their impact and severity of problematic issues and suggested fixes/solutions that need to be done with the highest priority. 

– Ranking the problems hierarchically and evaluating the severity of each problem, according to their intensity (such as severe, high, moderate, low). 

– The best practices and suggesting the improvements required in the code quality is recommended.

6. Regulatory Compliance

In many areas, smart contracts must comply with regulations. Audits will ensure that the contract will fulfill its obligations and make sure that any problems and errors will be avoided before it’s actually implemented. It shows user(s) and investors that the contract is properly controlled and secure. Security will be an important factor in blockchain’s competitive environment. 

7. Corrections and Re-audit

The development team begins working to resolve the issues, once the audit is reported. This is critical because it makes the contract safe and prevents the chance of a risk occurring. After changes are made and bugs are fixed, the smart contract should again be thoroughly re-checked to make sure everything is working properly, all issues have been resolved, and no new problems have occurred. 

  • Final report: A final report is drafted, verifying that the contract is secure and ready to be submitted. As blockchain technology develops rapidly, the importance of strict auditing procedures will also increase, making it an important element of the security of business transactions and reliable decentralized applications. 


Smart contract monitoring is an important part of the blockchain ecosystem. They allow us to use smart contracts with confidence because we know they are secure, efficient, and compliant with relevant regulations. The importance of thorough analysis and auditing is increasing, making it an essential part of the development process. If you plan to use smart contracts, it is recommended that you conduct a thorough audit with due diligence to help build trust, protect assets, and pave the way for success in blockchain technology. 

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