Audits in context of Web3

The role of websites and services in Web 3 is taken over by decentralized applications (dApps) as a central part of the next stage of the Internet evolution. These applications, which are based on blockchain technology, offer a variety of advantages that surpass the traditional internet. But with this innovation comes new challenges, especially in terms of security and trust. That's where audits come in – they're critical to ensuring the integrity and security of dApps. In this blog post, we will explore the importance of audits in general and specifically for dApps in the Web3 world. We will take a closer look at the decentralized approach using the example of AuditOne.

Introduction

dApps?

Decentralized applications, or dApps, are services that run on a blockchain. As a rule, they are defined by defined processes in smart contracts. Unlike traditional websites that run on centralized servers, dApps use the distributed network of a blockchain or DLT network to offer their services. This has several advantages:

Advantages of dApps compared to Web 2.0 services

Click on each bulletpoint to discover more details about the topic.

1. Transparency

All transactions and processes can be viewed by anyone in the network, which creates trust.

2. Immutability

Once data is stored on chain, it can no longer be tampered with, ensuring the integrity of the information.

3. Censorship Resistance

Since no central authority has control, it is almost impossible to censor or influence dApps after it is deployed.

4. Data Sovereignty

Instead of the established centralized login, e.g. with Google, Facebook or Amazon, the dApp is connected to the user's wallet. Users can determine for themselves which account is used for a dApp and what data it discloses in the process.

Examplesof dApps include Uniswap, a decentralized cryptocurrency (DEX) exchange, MagicSea, a decentralized finance (DeFi) platform. Other examples include customer loyalty programs like Journ3y and gaming platforms like Shi-Universe. Collections on different networks such as DappRadar and individual networks such as TangeVerse for IOTA provide an overview. Despite the many benefits of this technology, security remains a critical point that determines user adoption and trust.

Smart Contracts?

Processes in the lifecycle of a smart contract

Click on each step for more details.

1. Creation of the smart contract

A developer writes the code of the smart contract in a special programming language such as Solidity or Rust. The code defines the rules and conditions of the contract.

2. Deployment on a DLT network

The smart contract is published on a blockchain or DLT (e.g., Ethereum, Polygon, IOTA, or Solana) and is given a unique public address.

3. Interaction with the smart contract

Users can interact with the smart contract by sending transactions to its address. These transactions may include data and/or cryptocurrencies.

4. Execution of the contract

If the conditions defined in the code are met, the smart contract automatically performs the agreed actions, such as transferring assets (especially cryptocurrency or NFT) or updating data.

5. Immutability and transparency

All transactions and executions of the smart contract are stored in the blockchain, are visible to all participants and cannot be changed by anyone. On the one hand, this creates transparency and trust, but on the other hand, it also entails risks.

Smart contracts are self-executing contracts where the terms of the contract are written directly in code. The most widely used programming languages for their development are Solidity and Rust. They run on virtual machines on top of blockchain/DLT networks such as Ethereum, IOTA, Solana and many others, and allow transactions to be carried out automatically once predefined conditions are met. This eliminates intermediaries and replaces the basis oft rust with the security and transparency of blockchain technology. Smart contracts are particularly valuable because they make processes more efficient, cost-effective and tamper-proof. Their application have the potential to revolutionize traditional contract models and fundamentally change many business processes.

Once a smart contract has been published, it cannot be changed afterwards. This has many advantages, in particular that even the creator of the smart contract is bound by the coded contract terms, but also some pitfalls, because the interpreter of the smart contract will always adhere to the programmed processes with all the consequences, even if they contain errors, without being able to admit to their original intention.

Process example: User interaction when buying NFTs

Click on each step to understand the process of buying a digital artwork (NFT).

1. Creation of the NFT

An artist creates a digital artwork and "mints" it as an NFT on the blockchain. The smart contract is initialized with the details of the NFT, including the starting price and terms of sale.

2. User Registration

A potential buyer creates a wallet and tops it up with cryptocurrency. He connects his wallet to the NFT marketplace platform that uses the smart contract.

3. Check NFT offer

The user searches the marketplace and finds the desired NFT. He can see the details of the artwork, the current price, and the terms of sale set in the smart contract.

4. Initiating a purchase transaction

The user decides to purchase and initiates the transaction. It sends the required amount of cryptocurrency to the smart contract, which acts as a trustee.

5. Contract execution

The smart contract automatically checks whether all conditions are met (e.g. sufficient payment). If everything is correct, the NFT will be transferred to the buyer's wallet and the payment will be released to the seller deducted by a fee for the platform. In case of a sell on secondary market, royalties for the artist can also be incorporated.

6. Confirmation and recording

The transaction is recorded on chain. The buyer receives a confirmation and can now see the NFT in their wallet. The seller receives the payment in their wallet.

Importance of Audits for dApps

Audits play a crucial role in ensuring the security and trust of dApps. An audit is a systematic review of an application's code to identify and fix potential security vulnerabilities. Here are the main reasons why audits are essential for dApps:

Security: While blockchain technology offers inherent security benefits, dApps can still be vulnerable to bugs and exploits. An audit can help identify and address these vulnerabilities.
Trust: Bugs can get into the code not only through negligence, but also intentionally. Users are more willing to use a dApp if they know that the code has been independently verified and is secure.
Regulation and compliance: In some cases, audits can also help meet regulatory requirements, especially if the dApp operates in a highly regulated environment.

The Decentralized Approach: AuditOne

One of the most innovative platforms that specializes in providing audits for dApps is AuditOne. This platform takes a decentralized approach to ensure the security and integrity of dApps. Such an approach has several advantages:

Decentralization: Unlike traditional audits, which are conducted by a centralized team, AuditOne uses a network of experts from all over the world. This increases transparency and trust in the audit process.
Transparency: All audit reports and results are made publicly available. This fosters trust and allows users to verify the security of the dApp themselves.
Scalability: B yusing a decentralized network, AuditOne can quickly and efficiently conduct audits on a large number of dApps.
Specialization: Each dApp is processed by the auditors who have the most experience in the subject matter, the programming language, and the underlying network.

AuditOne offers a range of services, including smart contract audits, code reviews, and security analysis. By leveraging state-of-the-art technologies and a network of security experts, they can comprehensively audit dApps and ensure that they meet the highest security standards.

In addition, bounties are provided: rewards for reporting security-related bugs as an incentive for the entire community to find and report further bugs. As a sustainable variant of the decentralized audit, so to speak. By the way, the award of bounties is an established part of IT security and is also practiced by companies like Apple and Google.

The Need for Audits: Lessons from the Past

A succinct example of the importance of audits is the DAO hack of 2016. „The DAO“ (Decentralized Autonomous Organization) was one of the first major projects to demonstrate the potential of smart contracts and decentralized autonomous organizations. The DAO was founded as a mutual fund on the Ethereum blockchain, allowing participants to vote on investments and share profits. But a critical vulnerability in the smart contract code led to an attacker withdrawing about $60 million in Ether from the fund.

This incident had far-reaching consequences, including the splitting of the Ethereum blockchain into Ethereum (ETH) and Ethereum Classic (ETC). If The DAO's code had been thoroughly audited in advance, the attack might have been prevented. The DAO Hack impressively underlines the need for thorough audits and security checks in the world of dApps.

Generalbenefits of a decentralized approach to audits

A decentralized approach to audits offers several advantages:

Independence and objectivity: Since the audits are carried out by a network of independent experts, the likelihood of conflicts of interest is lower.
Speed and efficiency: A decentralized network can process tasks in parallel, resulting in faster results.
Cost-effectiveness: By leveraging crowd-sourcing principles, audit costs can be reduced without sacrificing quality.

AuditOne Insights: Improving Security Through Decentralized

AuditOne stands out from other audit service providers due to its unique decentralized approach. The platform leverages the collective intelligence of a global network of security experts to ensure dApps meet the highest security standards. In an article on Medium, AuditOne emphasizes that traditional audit models are often prone to conflicts of interest and human error. However, by decentralizing the audit process, the objectivity and reliability of theresults is greatly improved.

In addition, AuditOne emphasizes the importance of continuous audits. In the dynamic world of blockchain technology, new vulnerabilities can emerge at any time. A one-time audit is therefore often not enough to ensure the long-term security of a dApp. AuditOne therefore offers regular audits to ensure that dApps always remain at the cutting edge of security technology.

Last words

The importance of audits in the world of dApps cannot be overstated. They are essential to ensure safety, trust and integrity in this fast-growing sector. By using a decentralized approach such as the one offered by AuditOne, audits can be made even more transparent, efficient and reliable. At a time when the security of digital assets and applications is paramount, audits are an indispensable tool to make the blockchain and Web3 world more secure.

With the growth and advancement of blockchain technology and the increasing adoption of dApps, the role of audits will continue to increase. They are an essential part of gaining and maintaining user trust and securing the future of decentralized applications. When budgeting a Web3 project, it is best to plan the audit at the same time.

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Security Audits & Web3