Smart contracts have emerged as the biggest reason for boosting blockchain and web3 development. The smart contract web3 interplay is clearly visible in the continuously growing number of dApps in the web3 ecosystem. As a matter of fact, smart contracts are the main reason for which web3 development exists in the first place.
The first blockchain network, i.e., Bitcoin, was not tailored for programming as it served only as a peer-to-peer electronic cash system. Ethereum changed the traditional perspective on functionalities of blockchain networks in 2013 with smart contracts. Considered the core innovation of Ethereum blockchain, smart contract programmability allows developers to write and deploy programs on the Ethereum network.
The interesting thing about smart contracts is that they can run independently without the intervention of creators or other agents. The responses to questions like “What is the role of smart contracts?” would draw references to the definitions of smart contracts.
Smart contracts are programs that could define a specific collection of rules, an agreement, or a contract that would execute automatically upon fulfillment of certain conditions. However, smart contracts are not immune to security threats. Therefore, smart contract security threats have a major impact on the security of web3 ecosystem. Let us find out more about the implications and role of smart contracts in web3 security.
Importance of Smart Contracts
Smart contracts are small pieces of code that you can deploy to Ethereum blockchain or EVM-compatible blockchains. Solidity is the most popular programming language for creating and deploying smart contracts on Ethereum. In addition, you can find many other programming languages, such as Vyper and Rust, as useful alternatives for building smart contracts.
The relationship between smart contracts and web3 security offers proof of the importance of smart contracts. You might wonder about the possible ways in which smart contracts can affect web3 security. At the same time, some would place proposals for removing smart contracts from the web3 ecosystem. However, smart contracts are essential for establishing one of the core tenets of web3, i.e., decentralization.
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Features of Smart Contracts
The general assumption for solving a problem involves identification of the root cause of the problem and eradicating the cause. What if you found that smart contracts are responsible for some web3 security risks? Would you remove all smart contracts from web3? No, the role of smart contracts in web3 security should not be perceived from one side of the story.
You must also pay attention to the ways in which smart contracts build and enhance the web3 ecosystem. Smart contracts have the power to change the traditional systems and processes for boosting web3 development. As compared to traditional programming, smart contracts introduce distinctive features that empower the web3 landscape.
First of all, smart contracts could introduce the element of transparency. Upon deploying a smart contract to the blockchain, every user on the blockchain network could read the smart contract code. Another important trait of smart contract web3 applications is simplicity, as smart contracts feature smaller and simpler codebases.
One of the biggest traits of smart contracts is the assurance of immutability, as they cannot be modified after deploying on a blockchain. As a result, smart contracts could serve as trustworthy third parties for financial applications and other use cases with impartiality. After you deploy a smart contract, it would serve as an independent agent, which is completely transparent albeit with complex logic.
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Smart Contracts as the Foundations of Web3
The major objective of web3 focuses on redefining the internet with an emphasis on making it user-centric. In addition, web3 also aims to offer better security and decentralization than the existing web2 systems. Users, as well as businesses, have discovered the potential of web3 for transforming the broader technological landscape.
The answers to “What is the role of smart contracts?” would paint smart contracts as the backbone of web3. You should worry about the implications of smart contracts for web3 security owing to their role in making everything work behind the scenes. Here are the noticeable pointers for validating the significance of smart contracts for web3.
The most important element fostered by smart contracts in web3 is trust. As a matter of fact, trust is one of the key elements for defining web3. The significance of smart contracts in web3 security is evident in the ability of smart contracts to improve trust. Smart contracts work by removing the necessity for trusting centralized entities. At the same time, the advantage of transparency with smart contracts also empowers users to verify all transactions and agreements, thereby reducing the risks of fraud.
Traditional cross-border transactions take a substantial amount of time and are expensive. With the growing scale of globalization, cross-border transactions have become the norm. Interestingly, smart contracts can serve as a replacement for the existing legacy systems for cross-border payments and transaction settlements.
The smart contracts and web3 security equation ensure that users can access seamless, cross-border transactions effortlessly. For example, you would not need intermediaries or time-consuming currency conversions for cross-border transactions on a global scale.
The next crucial highlight of smart contracts is the assurance of better security and efficiency. Traditional contracts are more likely to encounter conflicts and errors. On the other hand, smart contracts are immutable and feature automatic execution upon fulfillment of predefined conditions.
Smart contracts could reduce human error, streamline processes, and minimize the risks of fraud. For example, smart contracts could automate financial services such as lending and borrowing while ensuring faster transactions at comparatively lower costs than traditional systems.
Web3 aims to resolve the biggest problem with legacy systems, i.e., centralization. Web2 provided an avenue for developing user-generated content and creation of a new breed of web services. At the same time, it also led to the unabated and monopolized control of big tech companies on the Internet.
The smart contracts web3 interplay focuses primarily on taking away control over the internet from a few tech companies to the users. Smart contracts ensure that a specific entity cannot modify or implement censorship over data or services offered by dApps in the web3 ecosystem. Decentralization can help users regain control and ownership over their data and different digital experiences.
Is It Possible To Imagine Web3 Without Smart Contracts?
The first thing on your mind right now must be the doubt regarding smart contract security. You can notice that smart contracts are immutable and subject to transparent verification. However, smart contracts and web3 security are interrelated terms as smart contracts have some inherent vulnerabilities. What if you can remove all smart contracts from web3? That would lead to many other problems, such as,
Lack of smart contracts could create limitations for the decentralization of the Internet, thereby placing the control of the Internet in the hands of central authorities. The lack of decentralization could create setbacks for the growth of innovation alongside imposing limitations on user autonomy.
The inferences regarding role of smart contracts in web3 security also draw attention to the lack of trust in centralized systems. Therefore, users would have to depend on intermediaries for legal agreements and financial transactions, which would lead to increased costs and risks of conflicts.
The involvement of centralized intermediaries would lead to lengthier transaction times alongside inefficiency and security issues in web3 applications. Businesses and individual users would have to deal with unprecedented delays and operational setbacks.
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Existing State of Smart Contract Security
You must have found out that smart contracts are not just a tool for web3 but also a major building block. Without smart contracts, you are most likely to find the setbacks of the web2 era, focused on inefficiency, lack of trust, and centralization. At the same time, security is an essential concern for web3 systems based on blockchain networks, which serve as the foundations for smart contracts.
Do you know about the impact of smart contracts in web3 security from a financial perspective? Smart contracts have been responsible for causing financial losses of over $12.3 billion in the web3 industry. One of the most recent examples of smart contract exploits in the domain of web3 is the Yearn Finance hack in April 2023. Hackers modified the value of the YUSDT tokens by leveraging a smart contract vulnerability, which led to a loss of almost $10 million.
Smart contracts provide immutability, which could prevent any unwanted modifications after deployment on a blockchain. However, the vulnerabilities of smart contracts have been opening them up to different types of attacks. According to DeFi Llama, the total financial losses in September 2023 due to web3 security breaches amounted to $303 million.
What can you do to ensure safeguards against smart contract vulnerabilities? The significance of smart contracts for the web3 ecosystem encourages discussions about the impact of smart contract vulnerabilities on web3 security. Therefore, it is important to identify the common smart contract vulnerabilities.
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What Types of Smart Contract Vulnerabilities Could Influence Web3 Security?
Smart contract vulnerabilities could affect web3 security as smart contracts are the core components for building web3. However, smart contracts and web3 security are bound to each other in multiple ways. First of all, it is important to note that smart contracts are pieces of code that are visible to everyone.
While it is not possible to modify the smart contract code after deploying on a blockchain, you can look for vulnerabilities in the code. Not everyone would use transparency for viewing smart contract code to verify its correctness. Some would use the transparency for exploring vulnerabilities and deploying attacks, such as,
- Reentrancy attacks.
- Front-running attacks.
- Integer overflow and underflow.
- Syntax errors.
- Business logic error.
The vulnerabilities in smart contracts could help hackers compromise access to functionalities of dApps in web3. At the same time, attackers could also leverage vulnerabilities of smart contracts in web3 security attacks by using malicious calls. For example, front-running attacks involve delaying the transactions of other users for personal interests.
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How Can You Ensure Secure Smart Contracts in Web3?
The impact of smart contracts on web3 security is visible in the scale of financial losses due to smart contract vulnerabilities. Web3 relies on smart contracts for its core tenets of decentralization, immutability, and trust. However, smart contracts web3 applications are not immune to problems with smart contract code or the underlying business logic.
Therefore, it is important to have regular and comprehensive audits for smart contracts before deploying them. In addition, smart contract developers must also follow the design and development best practices for ensuring secure smart contract development. Here are some of the best practices for developing smart contracts with web3 security in mind.
Select the Right Language and Framework
The first and most important consideration for developing secure smart contracts is the selection of right programming language and frameworks. Once you have found the answer to “What is the role of smart contracts?” you must understand the importance of creating effective code. In addition, you should also pay attention to the selection of frameworks such as Truffle, Hardhat, and Ganache.
Designing with Security Considerations
Smart contract developers should follow important design considerations to avoid vulnerabilities such as syntax issues. For instance, you can use modifiers for restricting access privileges or the SafeMath library for preventing arithmetic errors.
Professional auditors are the best bet for ensuring secure smart contract development at all costs. Comprehensive audits by an experienced third-party professional ensure that you can have an error-free smart contract on a blockchain network.
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The final impression regarding the role of smart contracts in web3 security points to the necessity of verifying smart contracts. You could also notice how smart contracts enable decentralization and transparency in the web3 ecosystem. Web3 is incomplete without smart contracts, and smart contracts are not immune to threats as they are just pieces of code.
Smart contracts deployed on public blockchain networks are completely transparent, and any malicious actor could seek vulnerabilities in the public code. However, you can safeguard smart contracts by following the essential best practices to develop smart contracts now.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!