The reason behind this is the smart contract.

In this article, we will help you identify four smart contract vulnerabilities and show you how to mitigate them.

So grab your cup of coffee and let's get down to business!

What is a smart contract?

Smart contracts are codes that keep a blockchain system running. These codes are created and stored on the blockchain system. However, their complexity can make them susceptible to vulnerabilities that can be exploited by malicious hackers, resulting in the loss of billions of dollars. That's why it's crucial to have a proper understanding of smart contracts and their vulnerabilities before investing.

Four Known Vulnerabilities to Look Out For

1. Replay Signature Attacks

To understand this vulnerability, let's define a transaction. A transaction is an agreement between a buyer and a seller to exchange goods or services.

For a transaction to take place, it requires the names of the recipient and the sender, the amount, and a signature. The signature prevents transactions from being duplicated. To produce the signature, you need to know the secret access to your account – the private key. Unfortunately, the private key is not secret enough to protect you.

Here's how replay signature attacks work:

Blockchain transactions are transparent, including the signatures. However, a hacker with enough sophistication can copy those transactions and signatures and use them to repeat the transaction on a different blockchain network, like Polygon. As a result, you will be debited.

To address this vulnerability, Ethereum introduced an update called EIP 155, which prevents replay signature attacks. However, this protection only applies at the protocol level and not at the application level for inner transactions. Therefore, founders need to add custom protections to their Solidity code.

2. Reentrancy Attack

A reentrancy attack is like tricking an ATM into giving you money multiple times before it realizes you have none left. It involves sneaking in and out of a money request, fooling the system into granting an attacker more funds than it has available.

Similarly, attackers exploit this trick in smart contract systems by calling functions that interact with contracts repeatedly before the first function call is completed. This can lead to unexpected behavior and result in the contract losing funds.

To mitigate this vulnerability, ensure that the contract's state changes are made before interacting with external contracts and implement checks to prevent multiple calls.

3. Overflow and Underflow of Integers

Overflow occurs when a calculation produces a number larger than the maximum limit, causing it to wrap around to the minimum value. Underflow, on the other hand, happens when a calculation yields a number smaller than the minimum limit, causing it to wrap around to the maximum value.

Overflow and underflow vulnerabilities can be problematic for smart contracts, as attackers can exploit them to manipulate the contract's execution, allowing them to withdraw more money than they own. To prevent these vulnerabilities, use SafeMath libraries to handle arithmetic operations and avoid these issues.

4. Unchecked External Calls

Smart contracts sometimes interact with external contracts. If these external calls are not properly validated, they can introduce security risks. Implement strict validation checks and use interface contracts to interact with external contracts, reducing the potential attack surface.

In summary, it's not about how much you have but how much you knowintheblockchainindustry so whether you are an investor or a founder, be on the lookout for vulnerabilities such as the reentrance attack, overflow, underflow of integers, and so on. The importance of exercising due diligence before investing in any digital asset can never be overemphasizedso trade with caution.