Ethereum uses "smart contracts," or programmable software programs built on blockchain technology, to power decentralized applications (dApps), non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs). The rich functionality provided by Ethereum smart contracts has allowed web3 developers to create complex blockchain-based applications.

However, the experimental nature of smart contracts increases vulnerabilities, bugs, and errors, and with the cryptocurrency market cap in the trillions of dollars, black hat hackers are looking for weaknesses in smart contracts that they can exploit.

In this article, we'll cover smart contract security best practices, fail-safe protections, and smart contract analysis tools for hardening smart contract security.

An Introduction to Ethereum Smart Contracts 

Ethereum smart contracts are written in Solidity, a language that's similar to C++ and Javascript. Ethereum smart contracts run on the Ethereum blockchain, and their execution is managed by the Ethereum Virtual Machine (EVM) — a virtual supercomputer that executes Ethereum smart contracts, and is distributed across several nodes around the world. 

The architecture of an Ethereum smart contract may differ from others. Smart contracts can be simple with limited functionality or complex with multi-layered functionality. 

4 Benefits of Smart Contracts

Regardless of their intended design, smart contracts offer the same set of benefits:

1. Immutability 

A smart contract cannot be easily modified (except when it is pre-programmed to do so), making them resistant to unapproved alterations. Once the contract is verified and live on the blockchain, it takes a lot of effort to alter or upgrade smart contract code. 

2. Trust

By design, smart contracts automatically execute a set of instructions when predefined conditions are met. This happens without external control, so the users involved can trust the code to work in absence of human intermediation. Two people can transact without trusting each other, safe in the knowledge that the smart contract will act as a fair arbiter. 

3. Cost-effectiveness 

The combination of smart contracts with legal instruments, (smart legal contracts) can simplify transactions between individuals and remove the need for middlemen. With no intermediaries to compensate, parties can spend less on executing and enforcing agreements. 

4. Speed 

Every smart contract operates on conditional programming (i.e. if this, then that). These programmed actions occur immediately when the rules of the contract's logic are met. As a result, transactions can happen faster than they do with legacy systems. 

6 Proven Ways to Secure Ethereum Smart Contracts

Smart contracts running on blockchain are set to transform governance, finance, IoT, and many more industries for users all over the world. However, with all the security challenges developers must consider, smart contract security vulnerabilities must be taken seriously.

Here are some fundamental smart contract security best practices web3 developers must employ when building dapps on Ethereum and EVM-compatible blockchains.

1. Perform Smart Contract Audits Religiously 

In 2022, deploying smart contracts without a security audit should be a crime. Even so, many developers are still launching unaudited smart contracts. The State of DeFi Security report from Certik shows that the majority of exploited smart contracts received no security audits. 

Understandably, hiring a smart contract auditor won't come cheap. But the right security checks can save you more down the road. In DeFi, millions have been lost in hacks that exploited the weaknesses in poorly written code. 

A good blockchain security auditor follows a proven audit process to find flaws in the smart contract code and spot errors that go unnoticed during development. Moreover, they can give useful advice on fixing and optimizing smart contracts before deployment. 

2. Test Your Code 

Test, test, and re-test your code to find bugs and other vulnerabilities.

Rigorous testing is perhaps the easiest and most effective way to ensure smart contracts perform as intended once they are deployed to mainnet. 

Deploy the smart contract on a test network and observe it for any abnormalities. That way, you can know if the protocol is functioning as it should. 

Recommended testnets for testing Ethereum smart contracts include:

Need testnet ETH? Use Alchemy's free Rinkeby ETH faucet to start testing your contracts.

Run Unit Tests to Isolate Single Code Snippets

Unit tests are also a good idea for improving contract security. A unit test looks at a single part of your code, so you can tell what went wrong if a failure occurs. 

It is advisable to run unit tests for each new feature before integrating it into the smart contract. Remember that smart contracts are immutable by nature, making it impossible to patch the code should a vulnerability appear later. 

3. Review Code with Peers

If you're working in a team, ensure every member conducts an independent code audit and provides detailed feedback. Solo developers may want to find a trusted colleague to peer review their smart contract code throughout the development process to increase security. 

4. Reduce Software Complexity 

The ultimate rule of software security is to keep code simple. The more complexity there is in the code, the more variables which increase the chances of something failing.

As the Dutch computer scientist Edsger W. Dijkstra said: "Simplicity is a prerequisite for reliability." 

This doesn't mean you should avoid building feature-rich smart contracts, however, you should start with a simple architecture at the beginning and slowly expand functionality over time using clean code and familiar patterns.. 

5. Implement Fail-Safe Protection

A rule of thumb when writing Ethereum smart contracts is to "prepare for failure." No matter how many times you test, you cannot possibly cover every possible bug that can affect the smart contract. As such, designing a fail-safe mechanism for your Ethereum smart contract is necessary. 

A fail-safe mode can be useful for limiting damage from malicious attacks. They are designed to trigger once abnormal smart contract activity is detected. 

4 Examples of Smart Contract Fail-Safe Protections

Examples of fail-safe protection for EVM-compatible smart contracts include:

1. Circuit Breakers 

A "circuit breaker" can be used to prevent the execution of functions when bugs and vulnerabilities are discovered. With circuit breakers, you have two options for activating them:

Because smart contracts are automated, circuit breakers restrict operations when errors occur.

2. Speed Bumps

A speed bump is a fail-safe mechanism to slow down malicious behaviors, although it won't prevent the attack, speed bumps give admins enough time to take immediate corrective actions.

A prime example of a speed bump comes from the infamous DAO hack of 2016. The program ensured that no one could withdraw funds from the DAO until after 27 days, which kept the funds in the smart contract until developers were able to retrieve them. 

3. Rate Limits 

A rate limit can control the frequency of call functions within a specific timeframe, providing a stop-gap measure against exploits that call functions repeatedly to drain locked funds (e.g. re-entrancy attacks), issue a large amount of ETH tokens, or perform multiple withdrawals.

Additionally, a rate limit at the contract level can be used to restrict the number of tokens issued within a time interval.

Given the number of exploits where bad actors issued an extraordinary amount of tokens within a short period of time, rate limits are a good preventive measure to harden smart contract security. 

4. Balance Limits 

Balance limits reduce smart contract risk by limiting the total amount of ETH that can be locked in a single smart contract.

A balance limit will monitor the balance of funds held in the smart contract. Once the threshold is reached, the mechanism triggers an automatic rejection of subsequent payments. 

If you're launching a new smart contract, balance limits may be a good preventative security measure to use until you're confident of the contract's security. 

6. Design Secure Access Control Mechanisms

Access control mechanisms determine who can govern and alter certain elements of the contract, and it is a crucial path of your Ethereum smart contract's architecture.

If the wrong person gets ownership or admin privileges, they can reprogram the contract to execute malicious transactions.

To prevent the wrong person from getting admin permissions, ensure that sensitive functions require multiple levels of authorization before they can be accessed. 

4 Smart Contract Security Tools Web3 Developers Should Know

Smart contract security is serious. Here are some analysis tools that can help you secure your smart contract against exploits, bugs, and vulnerabilities:

1. Octopus

Octopus is a highly functional analysis tool for analyzing smart contract bytecode to deeply understand internal behaviors. It is compatible with smart contracts built on popular blockchains, such as NEO, Bitcoin, and of course, Ethereum. 

2. Oyente 

Oyente is an automated smart contract audit tool used for identifying common smart contract security vulnerabilities. It comprises a Validator, Explorer, CoreAnalysis tool, and CGF builder. Each component performs a critical function; for example, the Explorer runs the smart contracts and CoreAnalysis detects any issues in the resulting output. 

3. Mythril 

Mythril is a smart contract security tool built by ConSensys that is useful for testing Ethereum Virtual Machine (EVM) bytecode. It uses a combination of taint analysis, SMT solving, and symbolic execution to discover vulnerabilities in smart contract code. 

4. Securify 

Securify is a smart contract vulnerability scanner backed by the Ethereum Foundation. This popular Ethereum smart contract scanner can detect up to 37 smart contract vulnerabilities and implements context-specific static analysis for more accurate security reports. 

Secure your next project with smart contract security best practices

When implemented correctly, smart contract technology can be adapted to support a variety of use cases. However, a smart contract is code, written by humans, and is sometimes imperfect. 

As a smart contract developer, you must follow best practices for security when writing code including running a detailed security analysis, leverage multiple security analysis tools and resources, get peer reviews, simplify code structures, and implement fail-safe mechanisms.