Blockchain Security Audits and Case Studies
Blockchain technology has experienced rapid growth, revolutionizing industries ranging from financial products to social media platforms.
However, this expansion has also brought significant security challenges.
Over $10 billion in value has been stolen in just the last five years due to security vulnerabilities and other hacks.
Proactive security measures are critical to protecting assets, ensuring trust, and maintaining the integrity of decentralized applications.
Introduction
A blockchain security audit systematically evaluates smart contract code, blockchain implementations, or zero-knowledge solutions to identify vulnerabilities. A blockchain security audit includes a manual, line-by-line code review by experienced security analysts, as well as tool-based analysis.
Veridise specializes in this work, and our team brings a strong academic background in software security, formal methods, and programming languages. We have completed hundreds of audits for clients ranging from large infrastructure protocols to a wide variety of decentralized applications. You can find our public audit reports on the Audit Archive page.
Our clients primarily use these audits to identify and mitigate bugs in their applications. Additionally, our audits provide suggestions on how to improve the code, making it more maintainable. These audits also demonstrate soundness to our clients’ stakeholders, such as application users and investors, prior to launching their products.
On this page, we introduce various types of audits and highlight some of the most notable hacks in the respective categories.
A blockchain security audit systematically evaluates smart contract code, blockchain implementations, or zero-knowledge solutions to identify vulnerabilities. A blockchain security audit includes a manual, line-by-line code review by experienced security analysts, as well as tool-based analysis.
Veridise specializes in this work, and our team brings a strong academic background in software security, formal methods, and programming languages. We have completed hundreds of audits for clients ranging from large infrastructure protocols to a wide variety of decentralized applications. You can find our public audit reports on the Audit Archive page.
Our clients primarily use these audits to identify and mitigate bugs in their applications. Additionally, our audits provide suggestions on how to improve the code, making it more maintainable. These audits also demonstrate soundness to our clients’ stakeholders, such as application users and investors, prior to launching their products.
On this page, we introduce various types of audits and highlight some of the most notable hacks in the respective categories.
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1. Definition & Importance
Smart contracts are self-executing contracts with the terms of the agreement directly written into software code. They play a crucial role in decentralized applications, enabling complex logic and financial transactions without intermediaries. However, this reliance on code makes smart contracts susceptible to bugs and vulnerabilities, which can lead to catastrophic consequences if the code is not carefully written and audited.
Common vulnerabilities in smart contracts include logic errors (which are unique to each application), integer overflows and underflows, data validation issues, reentrancy attacks, denial-of-service vulnerabilities, and access control issues.
2. Case study of failure
The most infamous smart contract hack is arguably “The DAO Hack” from as early as 2016. This exploit targeted a reentrancy vulnerability in the DAO’s smart contract. The hack resulted in the theft of $60 million worth of Ether. This incident even led to a controversial hard fork in the Ethereum blockchain.
1. Definition & Importance
Zero-knowledge proofs (ZKPs) allow one party to prove knowledge of certain information without revealing the information itself. This revolutionary technology is pivotal for privacy-based applications and is also used to scale blockchain system throughput (e.g., with ZK Rollups). ZKP audits ensure that these cryptographic protocols are implemented securely and do not expose users to privacy leaks or security breaches.
Common vulnerabilities in zero-knowledge proofs are underconstrained circuits. This means that the constraint is not deterministic, allowing malicious actors to generate invalid proofs that can still pass verification, potentially compromising the integrity of the system.
2. Case study of failure
In 2019, a critical vulnerability was discovered in Zcash’s cryptographic library, affecting its zk-SNARK implementation. The flaw could have allowed attackers to create counterfeit Zcash coins undetected, compromising the cryptocurrency’s supply integrity. The issue was privately disclosed, and a patch was implemented before any known exploitation occurred.
1. Definition & Importance
DeFi protocol audits are thorough reviews of the smart contracts and associated infrastructure of decentralized finance (DeFi) applications to identify and mitigate security vulnerabilities. These audits are critical for preventing exploits that can result in financial losses and erode user trust. In 2022 alone, DeFi hacks accounted for over $3 billion in stolen funds. At Veridise, we have audited number or large DeFi protocols such as Ribbon Finance (Aevo) and Ankr.
2. Case study of failure
In 2021, a bug in Compound’s Comptroller contract caused $90 million worth of COMP tokens to be erroneously distributed. The issue arose after an upgrade to the reward distribution logic, which allowed users to claim significantly more tokens than intended. Only approximately $37 million was voluntarily returned.
1. Definition & Importance
Layer 1 and Layer 2 blockchain audits analyze base-layer and scaling solutions for vulnerabilities in consensus mechanisms, transaction processing, and scalability protocols. These audits are essential to ensure the foundational infrastructure is secure and reliable. At Veridise, we have audited several L1 and L2 solutions, including Linea, Scroll, Manta, and Mina protocols.
2. Case study of failure
The Ronin Network bridge hack in 2022, tied to Axie Infinity, exploited a compromised validator key, resulting in over $600 million stolen. The Solana network also experienced multiple outages in 2022 due to consensus-related issues, affecting reliability and user confidence.
1. Definition & Importance
Web3 wallet audits focus on securing non-custodial wallets, which allow users to manage their private keys and funds without relying on intermediaries. Potential attack vectors include phishing campaigns, malware, and compromised browser extensions. At Veridise, we have audited several MetaMask Snap integrations.
2. Case study of failure
In 2023, a vulnerability in a MetaMask Snap prototype was discovered, allowing a malicious Snap to bypass sandbox restrictions. This flaw could have enabled unauthorized access to users’ private keys and sensitive wallet data. MetaMask addressed the issue by implementing stricter isolation protocols for Snap environments, protecting its user base of over 30 million.
1. Definition & Importance
NFT smart contract audits ensure the security of minting, transferring, and ownership processes for non-fungible tokens. These audits protect against vulnerabilities that could result in the loss of NFT assets or other malicious activities. In 2022, NFT-related exploits accounted for over $100 million in stolen assets, often due to insecure smart contracts.
2. Case study of failure
The OpenSea exploit in 2022 allowed attackers to purchase NFTs at outdated prices due to a vulnerability in the marketplace’s listing mechanisms. The flaw affected listings worth millions of dollars, with attackers profiting over $1.8 million in stolen NFTs. This incident prompted OpenSea to update its listing system and implement stricter security measures to prevent similar exploits.
Engaging reputable security audit firms with a proven track record ensures high-quality evaluations of smart contracts and blockchain systems. To get the most out of your security audit, we advise taking security seriously already at the development phase. Aiming for high testing coverage combined with thorough security audits provides the highest level of assurance.
We’ve written a blog post about 7 essential tips how to prepare for a blockchain audit where you can learn more.
Conclusion
Prioritizing security is the foundation for long-term success and user confidence.
Comprehensive blockchain security audits play a critical role in preventing catastrophic failures and maintaining trust in decentralized applications. Proper preparation for blockchain security audit ensures a smoother audit process, leading to more accurate results and actionable insights.
