Smart Contract Security: Identifying and Avoiding the 3 Most Common Exploits

Welcome to the InsurAce blog!

In today’s post, we’ll be taking an in-depth look at the three most common types of exploits on smart contracts and providing actionable advice for developers to avoid them. As DeFi and blockchain technology continue to evolve, ensuring the security of smart contracts is of paramount importance. By understanding these common exploits, developers can build robust, secure smart contracts that minimize risk and protect users’ assets.

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Reentrancy Attacks

One of the most well-known exploits in the world of smart contracts is the reentrancy attack.

It gained infamy through the 2016 DAO hack, which resulted in the loss of around $60 million worth of Ether at the time.

This type of exploit occurs when an attacker can repeatedly call a function before the previous call has been completed, thereby manipulating the contract’s state and potentially draining funds.

How to avoid reentrancy attacks:

a. Use the Checks-Effects-Interactions pattern:

This coding pattern recommends performing all checks and validations before executing any state-changing operations or external calls. By adhering to this pattern, developers can ensure that contract state changes only occur after all necessary conditions have been met.

b. Implement mutexes or reentrancy guards:

Mutexes and reentrancy guards can be used to lock a function while it is being executed, preventing it from being called again until the current execution is completed. This approach effectively blocks reentrancy attacks by limiting the function to one execution at a time.

c. Opt for a pull payment mechanism:

Instead of directly transferring funds to users within the smart contract, create a separate withdrawal function that allows users to “pull” their funds when needed. This practice limits the risk of reentrancy attacks by reducing the potential for malicious external calls during fund transfers.

Integer Overflow and Underflow

Another common exploit in smart contracts is integer overflow and underflow.

This issue arises when a numerical value goes beyond the maximum or minimum limit that can be represented by its data type, causing it to wrap around to the opposite extreme.

For example, an unsigned 8-bit integer can store values between 0 and 255. If this value is incremented beyond 255, it wraps around to 0, and if it’s decremented below 0, it wraps around to 255.

Attackers can exploit these vulnerabilities to manipulate token balances or other critical contract parameters.

How to avoid integer overflow and underflow:

a. Use SafeMath library:

The SafeMath library, provided by OpenZeppelin, offers a set of secure arithmetic operations that protect against integer overflow and underflow. By using these functions, developers can ensure that their smart contracts handle mathematical operations safely.

b. Validate input values:

Before performing any arithmetic operation, validate input values to ensure they are within acceptable ranges. This practice helps prevent unexpected behaviour caused by overflows and underflows.

c. Implement custom checks:

In cases where the SafeMath library isn’t applicable, developers can create custom checks to handle potential overflows and underflows. This involves comparing the result of an operation with the expected value range and reverting the transaction if the result is outside that range.

Front-Running Attacks

These attacks occur when malicious actors monitor pending transactions in a blockchain’s mempool, identify profitable transactions, and submit their own transactions with a higher gas price to ensure their execution before the original transaction.

By doing so, the attacker can manipulate the market, profit from arbitrage opportunities, or undermine the integrity of decentralized exchanges.

How to avoid front-running attacks:

a. Implement commit-reveal schemes:

A commit-reveal scheme requires users to first submit a hashed version of their intended action (commit phase) and later reveal the actual action in a separate transaction (reveal phase). This process conceals the details of the initial transaction from potential front-runners, reducing the likelihood of front-running attacks.

b. Utilize batched transactions:

Executing multiple transactions simultaneously in a batch can help mitigate front-running risks. By batching transactions, it becomes more difficult for attackers to identify and target individual transactions for front-running.

c. Leverage layer 2 solutions:

Layer 2 scaling solutions, such as zk-rollups and optimistic rollups, can help protect against front-running by moving transactions off the main blockchain and settling them in batches. This approach not only enhances transaction throughput but also reduces the visibility of individual transactions to potential front-runners.

As the adoption of blockchain technology and decentralized finance continues to grow, so does the need for secure and reliable smart contracts. By understanding the common exploits, such as reentrancy attacks, integer overflow and underflow, and front-running attacks, developers can build robust smart contracts that minimize risk and protect user assets.

Implementing best practices like the Checks-Effects-Interactions pattern, using the SafeMath library, validating input values, employing commit-reveal schemes, and leveraging layer 2 solutions can significantly reduce the likelihood of these exploits. Moreover, staying up-to-date with the latest research and developments in smart contract security can further strengthen your contracts against new and emerging threats.

As a developer, it’s essential to keep security at the forefront of your mind when designing and implementing smart contracts. By doing so, you not only protect your users’ assets but also contribute to the overall growth and stability of the blockchain ecosystem.

At InsurAce, we understand the importance of secure smart contracts in the rapidly evolving DeFi landscape.

Our platform offers comprehensive insurance solutions to protect your decentralized applications and protocols against potential exploits and unforeseen risks. With InsurAce, you can have peace of mind knowing that your project and users are safeguarded against the unexpected.

Stay tuned to our blog for more insights on smart contract security, DeFi developments, and tips for building secure and reliable decentralized applications. Together, let’s make the blockchain ecosystem a safer place for everyone.

About us:

InsurAce is a leading decentralised insurance protocol, providing reliable, robust and secure insurance services to DeFi users, allowing them to secure their investment funds against various risks.

InsurAce has been live since April 2021 and has built a full-spectrum cross-chain insurance product line, covering Smart Contract Vulnerabilities, Stablecoin De-Peg events, IDO risks, and Custodian Risks… protecting over $350m of assets of 5000+ customers!