Blockchain Audit: Definition and Operation

By Tokenize Xchange
July 19, 2023

Centralized systems force people to abide by the agreement they have agreed to, while decentralized systems  ensure that no one can interfere with them. However, as with any new technology, it is important to ensure that blockchain technology is secure and working properly. That is why blockchain audits are so important.

 

What is a Blockchain Audit?

Blockchain Audit is the process of assessing the security, functionality, and industry-standard compliance of a blockchain. It involves thoroughly testing the blockchain’s architecture and code to make sure everything works as intended and is free from vulnerabilities or weaknesses.

Blockchain audits are performed by experienced auditors or specialized audit firms with expertise in blockchain technology. The auditors utilize advanced tools and techniques to evaluate the authenticity of the blockchain and provide suggestions for enhancement. Blockchain audits play an important role in ensuring that the blockchain is trustworthy and secure for all parties involved.

 

How does Blockchain Audit work?

A blockchain audit  includes:

  • Reviewing the specifications of the blockchain network
  • Reviewing the source code used to build the network
  • Verifying that the data stored on the blockchain is correct and complete

An audit may include testing the security measures of the blockchain network, such as access control and encryption protocols, to identify any vulnerabilities or weaknesses. Blockchain audits are performed by experienced auditors or audit firms specialized in blockchain technology. 

The audit process usually includes the following steps:

  • In the planning phase, the audit team will collaborate with the organization to establish the audit’s scope, which encompasses the objectives, operations, and anticipated results of the blockchain.
  • Reviewing: The audit team will review the blockchain’s architecture and source code to assess its integrity.
  • Testing: The audit team will perform various tests to identify any vulnerabilities or weaknesses in the security of the blockchain, such as penetration testing, source code review, or configuration review.
  • Report: The audit team will provide a detailed report of the findings and recommendations for improvement. The report may include a summary of the audit objectives, scope, methods, and results.
  • Follow-up: The audit team can work with the organization to implement any recommendations and ensure the blockchain system functions properly.

 

Classification

There are usually two types of audits performed: 

  • Audits of the underlying blockchain protocol
  • Audits of the smart contracts running on it.

The underlying blockchain protocol audit is performed to evaluate the security, functionality, and compliance of the main blockchain protocol. This type of audit ensures that the blockchain is working as intended and that there are no vulnerabilities or weaknesses. The audit team usually consists of experts with experience in blockchain technology. They use advanced tools and techniques to assess the integrity of the blockchain and make recommendations for improvement.

Auditing of smart contracts running on the blockchain protocol is performed to evaluate the security, functionality, and compliance of smart contracts used to execute transactions on the blockchain. Smart contracts are self-executing contracts written in lines of code. These operate on the blockchain protocol and are employed to carry out transactions once certain conditions are fulfilled automatically. The practice of conducting audits on smart contracts guarantees their seamless functionality, while simultaneously fortifying them against any potential loopholes or shortcomings. The audit team usually consists of experts with experience in the development and security of smart contracts. They use special tools and techniques to assess the integrity of smart contracts and make recommendations for improvement.

The main difference between an audit of the underlying blockchain protocol and an audit of smart contracts is the focus of the audit. The underlying blockchain protocol audit focuses on the security, functionality, and compliance of the blockchain architecture, consensus mechanism, and transaction history. On the other hand, the process of auditing smart contracts involves examining the security, functionality, and compliance of the code, logic, and execution of the smart contract.

 

Benefits

  • Enhanced Security: Blockchain audits can identify potential vulnerabilities or weaknesses in blockchain security, helping the organization take remedial measures to mitigate any potential risks.
  • Industry Standard Compliance: A blockchain audit can ensure that a blockchain system is in compliance with industry standards and regulations. This is often of interest to financial applications built on top of blockchain but is also a consideration for facility builders.
  • Increase trust and credibility: Performing a blockchain audit demonstrates an organization’s commitment to ensuring the integrity and security of the blockchain system, thereby increasing the trust and credibility of users and stakeholders.
  • Cost savings: Identifying and remediating potential vulnerabilities or weaknesses in a blockchain system can help an organization avoid potential financial losses, reputational damage, or liability.
  • Continual Improvement: Blockchain audits can provide organizations with valuable improvement information and recommendations for their blockchain systems, helping them respond to potential risks and challenges.

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Conclusion

Blockchain audits are critical for maintaining the integrity, security, and compliance of blockchain systems with industry standards and regulations. An audit can assist discover any flaws or vulnerabilities in the blockchain system and make recommendations for improvement, reducing potential risks.

Disclaimer

Cryptocurrencies are subjected to high market risk and volatility despite high growth potential. Users are strongly advised to do their research and invest at their own risk.