Importance of Audit and Improved Security for Web3 Projects

Web3, the next generation of the internet, presents a rare opportunity for everyone to come onboard and develop interactive decentralized applications and services without the control of big corporations. Web3 eliminates the need for intermediaries and centralized entities, increasing transparency and reducing the risk of censorship, fraud, and data breaches. It also provides users with greater control over their data and privacy and enables financial transactions and other economic activities to be conducted in a decentralized manner.

Despite the many benefits of Web3, it is still marred by security. Like all decentralized systems, Web3 projects in general are vulnerable to attacks. There have been several instances of high-profile security breaches in the Web3 space, such as the infamous Lazarus hack that led to the loss of $600M in Axie Infinity and Wormhole attack that resulted in the loss of $326M.

Below are the statistics to back up the claims;

• 47.3% of the Web3 hacks in the first half of 2022 were due to smart contract vulnerabilities.
• Over 200 DeFi and smart contract exploits occurred in 2022, with approximately $10 billion lost.
• More than 100 DeFi and smart contract exploits have occurred in six months, with approximately $1.6 billion lost.

Why Are Hackers Moving from Web2 to Web3: The Cyber Risks of Web3?

Web2 hacks were all about data. In Web3;

• Code is money
• Security risks exist beyond data, including smart contract logic hacks and the lack of legal protection is where things go wrong.
• Sometimes, even when legal protection is there, you might not be able to identify who is liable. Even if you can file a lawsuit, the smart contract with which you are interacting may have been deployed anonymously.
• Then there are “rug pulls,” in which developers of a cryptocurrency project abandon it and run away with investors’ funds.

According to ResearchGate, the number of attacks from different layers was highest in the application layer with 47.25%. The contract layer followed closely with 45.41%, while the consensus layer, data layer, and network layer had 3.67%, 3.21%, and 0.46%.

An Ideal Smart Contract Audit Process

A reputable smart contract audit firm follows a process to ensure a hack-proof system. The process starts with;

1. Gathering code design patterns: Here, the audit company gathers specifications about the code to understand the intended behavior of smart contract and review the architecture to ensure it is structured and capable of integration of third-party smart contracts.
2. Functional testing: Smart contract features are tested to verify that the business and operational logic are implemented and working in the intended manner.
3. Manual analysis: The audit company performs a line by line inspection of the smart contract in order to find potential threats like transaction-ordering dependence and denial of service attacks.
4. Initial report: A report with all recorded vulnerabilities is submitted. The company proceeds to fix the bugs.
5. Static analysis: Code reviews are performed using in-house automated tools to detect possible coding flaws.
6. Final report: The final report is then published and available for everyone to read.

Conclusion

Security audits are essential to the success of an emerging space like Web3. An audit will significantly reduce hacks, increase user trust, and ensure that Web3 platforms comply with relevant security regulations, thereby encouraging adoption.

About DPAD Finance

DPAD Finance is the first of its kind in the Web3 industry- unifying the total fundraising process for startups in crypto after the incubation process has been completed. In other words, DPAD’s YCombinator is Web3’s foremost “Incubation + Launchpad pair” whereby the Launchpad is data-driven and transparent in all dimensions. We are open to support from different blockchain protocols and foundations with mutual terms and benefits to derive. Communications from VCs and blockchain foundations should be forwarded to relations@dpad.finance. So, join this voyage and explore.

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