Mechanism Design Security in Smart Contracts

Mechanism Design Security in Smart Contracts

The mere appearance of smart contracts within the distributed ledger technology was predetermined. Blockchain desperately needed mechanisms that would make it possible to automate a number of processes related to the functioning of decentralized networks.

But, as it turned out later, the scope of smart contracts application appeared to be much wider affecting almost all areas where cryptos are involved. An important aspect of the SC operation is the impossibility of changing the program code after its deployment on the blockchain. DecimalChain is an example of new generation blockchains offering the feature of smart contract development. Any smart contract development company is actively working at making the process of SCs creation as accessible and secure as possible, and Decimal is no exception. SC is characterized by the fact that conditions prescribed in the algorithm are executed automatically, as a result of which the corresponding action instructions are triggered.

Such a mechanism does not require the participation of intermediaries and eliminates the impact of external factors (such as, for example, the evaluation of contract terms, which is often subjective or simply unfair).

It would seem that such transparency and unambiguity in the execution of instructions allows us to consider smart contracts an impeccable tool and an alternative to classic paper contracts. In fact, it has a lot of vulnerabilities; some of which have common roots with the drawbacks of blockchain technology; and other are directly related to the program code implementing SC.

Malicious Smart Contract Wrapping

There is a generally accepted classification of types of SC vulnerabilities:

  • software errors. Programmers have often joked that any code, even consisting of one line, contains some mistakes. If a smart contract developer has insufficient experience and qualifications, especially in the field of blockchain, it is really difficult to avoid such errors. And if it is easier to identify syntactic errors, then everything is not so clear with logical ones. In any case, this leads to undeclared properties of the smart contract code, which are the source of potential attacks by intruders;
  • errors in the implementation of the architecture of the application based on the blockchain. This is where the lack of experience in working with distributed registries is most evident. Even highly qualified frontend programmers are not immune from such infrastructure errors;
  • errors in the implementation of the smart contract logic. Perhaps the most common type, which includes errors at the level of flowchart of code algorithm and implementation of the legal aspects in the use of smart contracts. This also includes vulnerabilities specific to programming languages used when writing code;
  • large projects characterized by vulnerabilities that appear as a result of the insufficient elaboration of some legal aspects of the use of a smart contract. In particular, we are talking about conflicts between the irreversibility of transactions and the legal protection of transactions requiring full or partial access to the distributed registry;
  • inally, the specific vulnerabilities. They appear during the implementation of consensus mechanisms.

Surely, the work on eliminating or minimizing the harm from such vulnerabilities is ongoing.

Frontrunning Smart Contract

Most of such mechanisms are declarative in nature, since the notorious human factor does not allow for absolute protection. And this statement is true not only for smart contracts.

Measures to prevent software errors

They include the following recommendations:

  • creating a number of specific requirements for developers, their qualifications and work experience in the field of distributed registries;
  • thorough regulation of SC development process based, including a description of business processes implemented by the SC code;
  • use of the latest versions of libraries in which all previously identified vulnerabilities have already been eliminated;
  • when implementing potentially dangerous external smart contracts, use the names of variables and functions that can be easily identified;
  • integration of a mechanism for automatic stop in code execution in case of error detection;
  • careful regulation of testing of the developed SC;
  • development of test scenarios for responding to external attacks;
  • documenting errors starting from the smart contract testing stage;
  • phased deployment of the SC.

Neutralizing errors in the implementation of the smart contract architecture

Since such errors are fraught with serious consequences, the use of the following technical and organizational measures is necessary:

  • analysis of the stability of consensus algorithm when entering data into the blockchain;
  • thorough analysis of critical sections of smart contract code with timestamps;
  • monitoring the integrity of smart contract during its testing;
  • analysis of the code’s resistance to external DDoS attacks.

And a general recommendation is to consider the features of the programming language used when writing the UK.

Measures to neutralize errors` consequences in the implementation of SC logic

As we have already noted, this is the most common type of error directly related to the security of smart contracts operation. To prevent them, the following preventive measures are used:

  • document the SC project at the level of working specifications, as well as the stage of its deployment on blockchain;
  • analyze the compliance of the functions performed by the contract with its documented capabilities;
  • limit the possibilities of managing a smart contract at the level of calling external functions (since the use of external procedures is the most common reason for the appearance of functionality that was not originally provided for);
  • limit all possible ways and options for making changes to the results of SC operation;
  • following the principle of “minimal and sufficient” in relation to its functionality considered good manners when writing the code of a smart contract;
  • if we are talking about contracts with a large number of parties, special attention should paid to potential conflict situations when one of the parties evades the terms of the contract;
  • documentation of SC logic should include items describing ways to resolve conflict situations.

Neutralizing legal vulnerabilities

Everything related to decentralized networks has a poorly developed legal framework, and it often does not exist at all. The situation does not look promising even in those countries where blockchain technologies have government support.

To neutralize such threats, the following preventive measures are carried out:

  • contractual fixation of the smart contract functionality along with indicating the consequences of fulfilling all the conditions stipulated by the code;
  • description of the procedure for performing a hard fork when critical errors are detected.

Elimination of errors in the logic of consensus-building algorithms

These vulnerabilities are considered fundamental; their elimination helps avoid major organizational and technical problems, and often it is impossible at all.

To prevent them, any smart contract development service should adhere to the following measures:

  • comprehensive analysis of the consensus algorithm for its resistance to external threats;
  • its recommended to use hybrid schemes for the implementation of the consensus algorithm to minimize the shortcomings of the basic;
  • special attention should paid to vulnerabilities directly related to the shortcomings of a particular blockchain. To do this, they increase the number of fully functional nodes of a distributed network, provide constant traffic monitoring, and fix the minimum transaction size when forming a block.


Some of the proposed ways to eliminate vulnerabilities in smart contracts are of a general nature; that is, they can also be used for conventional centralized networks. But most of the security measures have a specific nature associated with the peculiarities of the functioning of the blockchain. For this reason, the mass distribution of SC directly depends on the number of qualified specialists in this field. And when it exceeds a certain threshold value, the use of smart contracts will really become commonplace. In the meantime, it’s too early to talk about the complete information security of such systems.

Today, any smart contract development company employs all the security mechanisms for applications operating in this field. Decimal is one of such companies, and it is Decimal that offers its users a whole range of secure and thoroughly tested apps. Besides, it is a promising smart contract development service.

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