A smart contract or "smart contract" is used to automate the processes of execution of a contract between two or more parties in an autonomous and reliable way . They are usually widely used in digital banking or fintech companies . These contracts have enormous potential, but it must be taken into account that there are some Cybersecurity risks derived from factors such as those that we will detail below .

What is a smart contract?

Smart contracts have the ability to self-execute agreements between two or more parties based on already programmed parameters . In this way, it is possible to streamline, eliminate bureaucracy and avoid censorship in exchanges or businesses.

These smart contracts work with a chain of blocks (blockchain) and are made based on computer codes known as "Scripts".

To work, smart contracts must have 3 properties: represent value, transparency, and contract immutability .

Uses of smart contracts

Smart contracts avoid intermediaries, so they offer great economic and bureaucratic savings, especially in the event of a breach by one of the parties. So that we can get an idea of when a smart contract could be used , we have the following examples:

In a loan contract , a smart contract automatically closes access to the debtor's money if he does not pay his agreed interest or installments.
To expedite the data verification processes or execution of clauses in insurance contracts and avoid possible disputes.

The 5 risks of a smart contract

They are a true bet for the future, but currently it is difficult to achieve a contract of this type 100% correctly due to a series of risks that smart contracts present and that can be exploited by cybercriminals .

1. Arithmetic errors with integers

Smart contracts express values as integers since there is no floating point support . For this reason , miscalculating ( also known as floating point errors) with integers is one of the most common problems in smart contracts .

2. Block Gas Limit Vulnerability

Ethereum (the main digital blockchain platform) has limits to prevent the blocks from growing more than necessary. Gas is the “gasoline” of Ethereum, which allows transactions. If a smart contract uses too much Gas it will not fit in the block and can be reverted .

3. Lack of parameters or precondition controls

Another of the errors of a smart contract is that the necessary checks or validations are not carried out for the operation to be valid . For example, not checking if a user has enough token balance for the execution of the operation. These errors are of a human nature and occur when the design process has not been carried out with the necessary attention.

4. Front-running

The term Front-Running comes from traditional financial markets to define the practice of playing with an advantage in the stock market knowing events that would affect the market.

In the case of smart contracts, Front-Running occurs when the transactions are in the "mempool" and are visible. This is when certain interested parties may appear in advance of the contracts for their content, paying higher rates . When it occurs, it causes chaos in the order of transactions and is the most common vulnerability.

This is not only an unethical practice, it is illegal. When this is the case, a redesign or refactoring is necessary to solve it.

5. Programming errors

This cybersecurity problem linked to smart contracts is directly linked to programming. A small specification error can have serious consequences on the functionality and security of the contract.

To avoid this type of problem it is necessary to audit smart contract who are capable of fully understanding the contract code .