EEA Primers™

Version 1, March 23, 2023

Educating the Business Community About the Power of Ethereum

Introduction to Smart Contract Security

How can smart contracts be hacked? Q U I CK TA K E AWAYS

Smart contract vulnerabilities arise from various factors including errors Smart contracts are
in the design or implementation of the contract, the misuse of permanently visible on the
programming languages, or unforeseen interactions with other smart blockchain. Logic or code
contracts and the underlying blockchain platform. errors can be exploited by
attackers to steal or
Background manipulate digital assets.
Smart contract security is a crucial aspect of blockchain-based Commonly exploited
applications that rely on these self-executing computer programs to vulnerabilities include
automate transactions and agreements. Smart contracts operate based reentrancy, integer overflow
on predetermined rules and conditions, and once deployed their code and underflow, and poor
cannot be silently updated, making them resistant to fraud and access control allowing
tampering. However, the general immutability and transparency of smart changes in contract
contracts gives attackers the opportunity to look long and hard for ownership.
vulnerabilities they can exploit to steal or manipulate digital assets.
A primary challenge in smart contract security is avoiding known Following best practices for
vulnerabilities that can be exploited by attackers. Common examples of secure development, with
smart contract vulnerabilities include reentrancy attacks, integer rigorous testing for known
overflow and underflow, and unexpected changes in contract ownership. vulnerabilities, is vital to
Below are three interesting exploits that illustrate some of these types of prevent the risk of potentially
attacks: serious hacking.

• Reentrancy attack: Grim Finance, ~ USD 30m (18.12.2021). In a

reentrancy attack, the attacker exploits a vulnerability in the smart
contract code that allows them to call the same function multiple
times before it has completed processing. It is analogous to
transferring funds from a debit card while the account balance
remains unchanged. Re-entrancy attacks are well-known, but
numerous contracts are successfully attacked each year for millions of
$USD equivalent.

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• Price oracle manipulation, Vee Finance, USD 35m (21.09.2021).
In blockchain, an oracle provides information from outside the
blockchain that a smart contract needs, for example market price data.
Hackers discovered that Vee Finance relied on a single oracle, and they
could distort the asset prices it showed by manipulative trading. This HOW DO I FIND OUT MORE?
compromised the system, enabling them to buy and sell at the
manipulated prices. (There have been many examples of this type of Read: EEA EthTrust Security
attack). Levels Specification, v1. An
• Rounding Vulnerability: Uniswap - fixed before deployment. The EEA standard for Smart
Uniswap platform was carefully reviewed before deployment. This Contract Security, backed by
identified a potential vulnerability to rounding attacks, where swapping the expertise of many
large sums from one token to another and then back, could exploit security experts.
rounding to leak value in every transaction. This could have been Requirements for a security
exploited (and in other similar cases has) to steal very substantial audit, to ensure it tests for
sums from the platform, rapidly taking a small and barely visible slice known vulnerabilities.
at a time.
Read: Biggest Crypto Hacks,
Prevention. To prevent hacks, it is important to apply best practices for and Their Causes. Oleh
secure development. It is vital to design the code logic carefully, consider Malanii of Hacken discusses
the implications of all possible usage, and assign appropriate roles and 7 hacks that together
powers in the smart contract. Smart contracts should provide monitoring, enabled the theft of around
and enable responsible parties to bring about an emergency pause while $3B USD.
ensuring that unauthorized parties cannot gain control of the contract,
nor manipulate its business logic to work against its intended goals. Watch: The State of Security
Independent code review (audit). A smart contract security review can for a Decentralized World.
identify and prevent potential exploits that can lead to financial losses An EEA Webinar from 2021: a
and other negative consequences. This involves a thorough examination of panel discussion of security
the code to identify potential vulnerabilities. The process typically in Ethereum, and how to
combines manual and automated analysis, including code reviews, improve it.
penetration testing, and vulnerability assessments. Because a tiny change
to a single line can introduce a vulnerability, it is crucial that the code
deployed is the exact code reviewed, and that any changes are
subsequently re-checked thoroughly.

The EEA thanks Roman Palamarchuk (Smart Contract Auditor at Hacken) for contributing the core text of this Primer.

About the EEA

The Enterprise Ethereum Alliance (EEA) enables organizations to adopt and use
Ethereum technology in their daily business operations. The EEA empowers the
Ethereum ecosystem to develop new business opportunities, drive industry
adoption, and learn and collaborate.
To learn more about joining the EEA, reach out to [email protected]
or visit https://entethalliance.org/become-a-member/. Produced in conjunction with
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Copyright ©2023 Enterprise Ethereum Alliance entethalliance.org