ERC20 Audit – How It Works?
With the increase and growth of blockchain technologies, more and more people have started to create or invest in cryptographic tokens and assets that help to facilitate financial transactions. Crypto tokens operate on the top of a blockchain platform that serves as a medium technology for creating and executing smart contracts and decentralized apps. Therefore, they are a great way to raise funds for crowd sales and other vital transactions.
The rise of decentralized platforms, smart contracts, and non-fungible tokens has led to cryptos being widely used. Depending on which standards the created tokens are traded, an address format can differ. And the name of the token standard is directly connected with the blockchain they are developed on. Thus, tokens that are built on the Ethereum blockchain are called ERC-20 tokens. And as you can already guess, in this article, we are going to talk precisely about ERC-20 tokens, their smart contract audit process, and known vulnerabilities.
So, grab a cup of coffee, and let’s begin.
Introduction to ERC20 Audit Process
ERC-20 is the standard for digital tokens running on the Ethereum network. And although this network is one of the most secure and demanded blockchains to date, it is still keen on various errors and flaws in the code. That’s why a smart contract audit is a critical milestone for people and businesses who want to ensure the security of their token contracts and crypto assets and try to build safe blockchain applications. Due to the token audit, you have the ability to identify all existing security issues, critical and minor vulnerabilities, and safety risks of the ERC20 token contract and resolve them in real-time without any delays.
Furthermore, the ultimate goal of the token security audit services is to ensure that the contract source code is free of bugs and errors and functions correctly, following all predetermined terms and agreements.
Benefits of a Smart Contract Security Audit
Here let’s review some of the expected benefits you can gain while performing a smart contract audit for your token.
#1 Avoid Costly Errors
Testing and auditing token contract code early in the development circle can save companies a lot of trouble and minimize the risk of security exploit attempts and financial losses.
#2 Expert Review
During the smart contract audit, the team of auditors and developers double-check the code of the token contracts to avoid spurious results.
#3 Automatic Scans
Most smart contract audit companies’ services include automatic scans and tests. The APIs are more cost-effective and can be an excellent choice for users with limited funds.
#4 Easy Integration
The smart contract audit process allows you to perform regular security assessments to improve the integrity of the development environment and security properties.
#5 Regular Verification
While writing and developing the code, token contract developers can easily detect potential errors and quickly resolve all security vulnerabilities found.
#6 Detailed Reports
At the end of smart contract audits, the team should deliver a detailed audit report to a client covering the executive summary of the conducted security audit, overall evaluation of the token contract and blockchain security, and a comprehensive vulnerability report.
ERC20 Token Audit Process: Steps and Methodology
Smart contracts are relatively complex programs that often store large amounts of investors’ funds and token transfers and manage complex exchange transaction services. That’s why users should regularly conduct smart contract security audits and implement the best practices to guarantee the proper functionality of their blockchain applications, projects, and other standards.
An ERC20 token audit doesn’t incorporate a strict methodology and approach like other smart contract audits. However, a specific set of steps ease and simplify the auditing process. Let’s look through them in detail.
Intelligence and Specification Gathering
The foundation of any smart contract audit is a solid base of necessary information, data, and materials. In this step, the auditors’ team gathers the terms and specifications of the project’s smart contracts, including technical documentation, the ERC20 token code’s architecture, objectives and goals of the upcoming token audit, and the ways of audit delivery.
After collecting code information and data in one place, auditors can move on to the next step of the token audit and begin automatic analysis of the smart contract project. The goal of the automatic analysis is to check and review token code quality through various automated tools and tests. Some of the most widely used security tools designed for a token audit include:
Once the automatic testing is done, the security team’s next step is manual review. The manual review process covers the usual software guidelines like contract code structure, commenting code, business logic, state variables, and avoiding reentrancy attacks.
ERC20 Token Code Testing
This stage includes running various tests and checking whether smart contracts are running correctly or not. During a token audit, most auditors conduct unit and integrated tests. A unit test, for example, helps to check and verify if the smart contract function follows the intended behavior and requirements or not and evaluate the chances of code’s function delivery failure.
Initial Audit Report
After completing all these steps, the security team will form an initial report covering detected vulnerabilities, smart contract code development errors, and recommended practices or approaches to further activities based on the test results.
Depending on the initial findings of the conducted audit, auditors review the smart contract code to resolve and fix the current security issues and restore the token’s original function.
Final Audit Report
After all the stages are completed, it’s time for the auditing team to deliver a comprehensive report that reflects the results of the performed audit. The report usually includes the detected security vulnerabilities, code errors and bugs, and remediation options and recommendations.
Token audits cover a comprehensive analysis of the smart contract code to identify and fix all existing vulnerabilities and security issues. Therefore, the core purpose of smart contract audits is to ensure the developed contract is free of bugs, errors, and exploit risks.
An ERC20 ( Ethereum Request for comment) is a token standard used for writing and developing smart contracts on Ethereum. Later, these smart contracts can be used for creating tokenized assets and smart property that people and businesses can invest in. Multiple examples of famous digital currencies that use ERC-20 tokens include Basic Attention Token, Maker, OMG Network, etc.
The primary process and methodology of token audits are similar to other smart contracts or blockchain security auditing. The experts’ team conducts various types of analysis, tests, and assessments in order to identify potential security vulnerabilities, bugs, errors, and weak spots of the written contract. The main stages of token auditing include:
1. Information Gathering: It covers all the required materials such as the technical documents, smart contract architecture, function specifics, and determining the project’s goals and objectives.
2. Automatic and Manual Testing: The crucial part of an auditing process includes code function testing and assessment through automated tools and manual analysis.
3. Unit Testing: It’s essential to perform multiple unit tests to ensure the code runs correctly without disruption and error.
4. Final Reporting: When the auditing is complete, the team provides a detailed report of the conducted audit, including the detected problems and remediation methods.
Smart contract audits refer to testing, evaluating, and analyzing the decentralized project. So, if you have performed any of these steps, it can be said that your smart contract is audited. However, it’s essential to conduct a proper security assessment for comprehensive auditing, including all the steps and procedures. But if you don’t want or can’t hire a smart contract audit company for your project, you can use automated scans and tools for first-hand review and testing.