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Token audit – things to know before investing

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Token Audit

What are smart contracts?

A smart contract is a special program or algorithm that runs on blockchain. What makes it distinctive from traditional programs is its automatic execution after all the conditions described in the contract are met. Since it is a digital contract, it requires a specific environment for its work and a prepared IT infrastructure that is necessary for flawless execution.

Smart contracts are fueled by transactions that make up the basis of a distributed ledger functioning on P2P data transfer. A cryptocurrency transaction is one of the most common examples here. With cryptocurrencies, international payments are not a problem any longer as the funds are transferred almost immediately to the other party regardless of the location.

With that said, the convenience of smart contracts is indisputable in insurance, supply chain management, derivatives, and other spheres. The level of their implementation continues to grow contributing to the mass adoption of cryptocurrencies and wider tokenization of different industries.

What are smart contract audits?

When investing in a specific token, it’s recommended to select the project that has passed an audit to ensure that your funds won’t be lost. The smart contract audit implies a team of auditors checking if the code of the asset you’ve chosen for investing is devoid of bugs. It should be technically perfect to be a proper investment tool.

Usually, teams standing behind blockchain projects post the links to third-party audits on their social media channels. Using this link, you can find a company that has audited similar tokens earlier and see their charts to find out what has happened to the asset after a Token Generation Event (TGE). This can help to avoid scam auditors, as there are plenty of those in this niche.

Also, it’s worth noting that smart contract audit services may be rather complex. Though a smart contract itself may be of small size, it is still a full-fledged program capable of organizing complex branches, loops, decision trees.

What projects need security audits and why?

As smart contracts usually work with money, they have to be thoroughly scrutinized to stand up to the level of security requirements specified by the financial area. That is why testing is an integral part of the development of any smart contract.

When released on the blockchain, a smart contract cannot be changed anymore. Hence, even one insignificant bug in a smart contract code can entail deplorable consequences and the loss of funds. Why does this happen if smart contracts are considered one of the safest methods of managing funds today? Despite the perfection of this technology, hackers are also on the alert. They become more inventive as the complexity of the contracts grows. Though blockchain is secure, it doesn’t refer to blockchain applications. Audits of smart contracts are conducted to combat this problem.

How are smart contract audits done?

The audit is conducted by independent developers. Usually, in-house developers audit the code after the stage of development, and then they give it away to an independent developer to check the code. For instance, ICO smart contract audit can be performed by the experts of Blockhunters that have gig expertise in this area.

However, note that the audit report is not a legal paper that can prove the security of the code. Nobody can give a 100% guarantee that code doesn’t contain errors or vulnerabilities, including the auditors themselves. The audit only guarantees that the code was checked by the expert who considers that the code is secure.

A bug bounty program is also frequently used to audit the code that is uploaded to the Git repository so that any developer can find errors in the code and be rewarded for this. The rewards are usually distributed as tokens of the corresponding cryptocurrency network.

Types of smart contract audit services

Apart from the contracts, the smart contract audit services can also be applied to the following objects:

  • Token audits and in crowdsales projects
  • DeFi projects
  • Wallets and apps

The price depends upon the type of audit services offered. They may include:

  • Automated security audit
  • Manual security audit
  • Business logic audit based on the comprehensive analysis of the white and yellow papers

Though professional audits are important, you should not rely upon them only. Automated software can also be useful as it is capable of identifying flaws in the code rapidly. Services such as Mythril and Slither offer such kinds of audits, however, they require technical knowledge from the customer to be able to properly use them. TokenGuard, on the contrary, provides reports that are clean and easy to comprehend helping you find out if it is worth investing in the token and there are no errors in its code.

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