Introduction
Every year, blockchain opens up new opportunities in the world of digital transactions and decentralized applications. One of the most novel components of this ecosystem is smart accounts – advanced accounts that can automatically perform predefined functions and operations.
Imagine a digital wallet that automatically allocates funds to different investment portfolios based on predefined rules or market conditions. Or, say, a smart contract that manages the delivery of goods based on real-time supply and demand.
While smart accounts offer unprecedented flexibility and automation in cryptocurrency management, they also pose unique security challenges that must be addressed to protect valuable digital assets and ensure the stability of decentralized systems.
What is a smart account?
Before delving into security issues, let’s break down the nature of smart accounts and their role in the blockchain ecosystem. In traditional blockchains such as Bitcoin, accounts are addresses associated with specific balances and transactions. However, the smart accounts present in platforms such as Ethereum have much broader functionality.
Smart accounts are unique accounts associated with executable program code known as smart contracts. These contracts define the conditions under which a smart account can perform certain actions, such as transferring funds, performing calculations, or interacting with other contracts. In the simplest example, a smart account can be programmed to automatically send monthly rent payments from your cryptocurrency funds.
Thus, unlike regular accounts, smart accounts don’t just store funds, but are autonomous agents capable of making decisions and performing complex transactions according to the logic embedded in them. It’s as if your bank account can transfer funds autonomously at certain times and according to certain criteria.
Let’s list the main functions of smart accounts:
- Automatic transactions when predefined conditions are met with a wide variety of logic. For example, transferring funds to a charitable organization when a certain threshold of donations is reached.
- Complex permission structures and decision rules. A smart account may require confirmation from multiple participants to perform critical transactions.
- Interoperability with other smart contracts and decentralized applications (DApps). This enables the creation of complex decentralized ecosystems.
- Data management in a distributed blockchain registry.
Smart account security challenges
The unique security challenges of smart accounts are of some concern, as ensuring the protection of our digital assets in a dynamic blockchain environment becomes critical as cryptocurrencies are adopted by the general public. Let’s take a look at the main security concerns of smart accounts.
Since the functionality of smart accounts is determined by their program code, any bugs or vulnerabilities in that code can have catastrophic consequences. Examples of such vulnerabilities include:
- Errors in the code that result in unwanted behavior or loss of funds. In 2016, The DAO project lost about $50 million due to a vulnerability in the smart contract code.
- Cyberattacks that allow attackers to call smart contract functions multiple times. This can be used for misappropriation of funds or other malicious activities.
- Problems with access control and permissions. Improperly configured permissions can allow attackers to gain unauthorized control of a smart account.
Blockchain history already knows several high-profile cases of security breaches related to smart contracts. The incidents raise serious concerns, especially for those who are actively interested in blockchain. With the aforementioned hack of The Decentralized Autonomous Organization (DAO), the incident led to a hard fork (hard split) of the Ethereum network and the creation of a new version of the blockchain, Ethereum Classic.
Once a smart contract is deployed on the blockchain, its code becomes immutable, making it extremely difficult to fix bugs and vulnerabilities. This emphasizes the importance of thoroughly testing and auditing the code before deployment. Otherwise, bugs can lead to catastrophic consequences, as happened with CryptoKitties and Cryptozombies, where bugs in smart contracts led to the loss of valuable digital resources.
Best practices for smart account security
Given the risks associated with smart accounts, it is critical to follow security best practices throughout the lifecycle of smart contracts. The following outlines the key steps in the security strategy for smart accounts and their smart contracts.
Security by design
Security should be an integral part of the smart contract design process. Contract logic, access structure, key management, and other critical aspects should be carefully considered. For example, the Maker DAO project performed a comprehensive implementation design with security in mind before implementing a tiered permission structure and voting mechanism to manage its secured stablecoin system.
Secure smart contract development
- Utilizing formal verification and proof-of-concept methods to ensure code correctness. Tools such as the Certora platform enable formal verification of smart contracts using symbolic execution techniques.
- Hiring independent experts to audit code before deployment. Companies such as H-X Technologies specialize in auditing the security of smart contracts.
- Utilizing secure programming patterns and standards for smart contracts, such as OpenZeppelin and Solidity Security Best Practices.
Continuous security monitoring
Even after a smart contract is deployed, it is important to remember to constantly monitor its security, as new threats and vulnerabilities can appear at any time.
What does this mean in practice? It means that you should regularly assess the security of your smart contract as well as its web2 infrastructure against new threats and vulnerabilities. This may include:
- Automated scanning with web2 and web3 security assessment tools.
- Monitoring of smart contract activity and incidents.
- Regular security audits by internal or external experts.
The future of smart account security
As blockchain and smart contract technologies evolve, new approaches and tools are emerging to improve smart account security:
- Some tools use artificial intelligence and machine learning to automatically detect vulnerabilities and bugs in the code of smart contracts.
- Zero-disclosure proofs (ZKP) to keep transactions private. For example, the Zcash and Tornado Cash projects use this technology to ensure privacy in public blockchains.
- Secure Multiparty Computing (MPC) to protect sensitive data. This technology allows computations to be performed on encrypted data without revealing the data itself. The Ethereum Obscuro library uses MPC to securely create and manage smart contracts.
- Formal verification to mathematically prove the correctness of smart contract code. For example, Mi-Cho-Coq tool allows formal verification of Tezos Michelson contracts before they are deployed.
Although quantum computers are still at an early stage of development, they could pose a threat to cryptographic algorithms used in blockchains in the future. Attackers with a sufficiently powerful quantum computer will be able to crack traditional cryptographic systems used in blockchains. Developers of smart contracts should keep an eye on this development and adapt their security systems using quantum-resistant algorithms.
Open-source communities play an important role in raising the security standards of smart contracts. Working together, sharing knowledge and improving tools contribute to a more secure ecosystem. Examples of such communities include OpenZeppelin, Ethereum Security Community, and Ethereum Cat Herders.
Our approach to smart account security
At H-X Technologies, we recognize the critical importance of smart accounts and smart contracts security. Our team of experts has deep knowledge and extensive experience in smart contract auditing, formal verification, and security best practices.
We have developed proprietary tools and methodologies designed specifically to secure smart contracts at all stages of their lifecycle. Our free product SCAU.PRO is a platform for automated smart contract auditing and vulnerability detection based on artificial intelligence. This tool is suitable for rapid automated assessment and in many cases illustrates the need for deeper manual analysis.
Using advanced analysis tools and techniques such as symbolic execution and theorem proving, our experts can detect a wide range of potential vulnerabilities including code bugs, access control issues and other security problems. In addition, we support the customization of analysis rules to meet the unique requirements of projects.
Responding to the demands of the burgeoning Web3 security market, we offer expert auditing and certification services for smart contracts. Our auditors have years of experience with various blockchain platforms and smart contract languages such as Solidity, Vyper, Move and many others.
We also provide security consulting services for projects related to smart accounts and decentralized applications. Our experts can help you implement security best practices from design and development to deployment and maintenance.
Successful cases
Our approach to securing smart contracts has already proven its effectiveness with numerous clients from various industries. We are proud of the testimonials from our satisfied clients, which emphasize the high professionalism and expertise of our team.
For example, we helped one of the leading decentralized exchange projects to conduct a comprehensive security audit of their smart contracts before launch. Thanks to our job, several critical vulnerabilities were identified and fixed, preventing potential losses of user funds.
In another case, we worked with a fintech startup building a decentralized blockchain-based lending system. Our consultants helped them develop a robust access management and control structure for their smart contracts, protecting sensitive data and preventing the possibility of fraud.
This successful experience enabled the startup to attract significant investment and successfully launch their project on the market.
Smart account security training and education
An important aspect of smart account security is training and education. This includes educating developers, auditors, users, and other participants in the blockchain ecosystem about security best practices, threats and vulnerabilities, and how to prevent them.
Developers of smart contracts should be well aware of secure programming principles, security threats and how to prevent them. This includes understanding typical vulnerabilities such as buffer overflows, code bugs, and access control issues, as well as the use of tools and methodologies to detect and fix such vulnerabilities.
Smart contract security auditors should be trained to use specialized tools and methodologies to analyze smart contract codes, detect vulnerabilities, and offer recommendations for fixing them. They should also be up-to-date on the latest threats and trends in blockchain security.
Users of smart accounts and decentralized applications, in our opinion, play an equally important role. Users need to be aware of security risks and best practices. This can include education on how to securely store and use private keys, understanding the risks associated with phishing and other types of fraud, and using tools and services to monitor the security of their smart accounts.
Conclusion
Smart account security is critical in the era of digital transactions and decentralized applications. From secure development and auditing of smart contracts to training and education, compliance with regulatory requirements and security standards, and continuous security monitoring and evaluation, all these aspects play a key role in smart account security.
At H-X Technologies, we strive to be at the forefront of these developments by offering our clients the most advanced smart account security solutions and services. Our team of experts is ready to help you implement security best practices and protect your valuable digital assets.
Contact us today to learn more about how we can help you keep your smart accounts secure.