The Crypto Online

• Smart contracts can be exploited because of their vulnerabilities and weaknesses.
• Hackers can penetrate through them and compromise the funds locked in them.

The truly decentralized nature of blockchain could only be realized when the trust factor, which is rooted in the centralized system, could be eliminated. Users should not make a complete deal in good faith that the other party will abide by the terms. In the real world, it is ensured by the use of lawyers who ask them to sign legal contracts to prevent malicious practice or backing out.

Blockchain performs this through smart contracts, which are codes that execute automatically once the preset logic and conditions are met, making the whole system trustless. Here, the funds are locked in escrow and released only if both parties complete their parts of the deal. 

Smart contracts can range from simple to complex, designed to fulfill multiple logic to produce the desired outcome. Immutability is an inherent feature of blockchain that ensures that no transaction is reversed and that the data once entered can not be tampered with. Thus, smart contracts need to be coded carefully to prevent the loss of funds due to poor design and unclear logic. 

The Common Smart-Contract Vulnerabilities

The integer overflow and underflow vulnerabilities can occur if the smart contract involves incorrect arithmetic calculations because the numbers involved are pretty small or large. The infamous Ponzi scheme of Proof of Week Hands Coin (PoWH) is the best example, where the valuation of a project with one million dollars as its initial value fell by more than $800k. 

Although the transparency of blockchain is its inherent feature, it can also cause havoc. Once the smart contracts and included transactions are deployed over the network, they enter the memory pool and wait in line for their turn to be confirmed. Your smart contract is visible to everyone and if it contains any arbitrage opportunities, anyone can copy it and submit it over the network with higher gas fees, increasing their probability. 

Moreover, miners have an upper hand above all because of their penetration into the network and more technical know-how than common users. They also have the power to arrange transactions the way they want, mostly in order of gas flow, to make more profits. Thus, they can front-run other honest users and make a profit from what is called the miner’s extractable value (MEV). 

Several smart contracts depend on other external smart contracts to complete their execution. They call another smart contract and once that is completed, the original moves over to complete it. However, hackers can intercept this callback and introduce their own, malicious smart contract. Thus, they can modify the terms of the agreement and exploit the funds. Sometimes, developers forget to put a limit on the callbacks, and hackers can call them multiple times, gradually depleting all the funds under the smart contract without the knowledge of the developer. 

Smart contracts do not support floating point and thus values are stored mostly in integers. Further, to achieve better accuracy, the values are stored in smaller units rather than large ones, which is best seen in financial services, where the unit used is cents rather than dollars. However, developers are aware of the issue with integer overflow, where once the integers, which have a preset limit, reach the same value, they are reset to the lowest value. 

Conclusion

Smart contracts have become the base of blockchain applications nowadays and developers should ensure their security before launch. They can start bug bounty programs, conduct audits of their code by reputed companies, take the help of artificial intelligence (AI) to correct as they code, and perform regular internal security checks. They can also learn from the previous examples of vulnerabilities faced by others.