In the realm of digital business, blockchain security audits are essential for implementing the best security practices and ensuring robust system security. It secures all complex online systems and networks, thereby enhancing their performance and ensuring compliance with modern standards.

According to SlowMist's blockchain hacking incident archive, there were 464 security incidents in 2023, resulting in losses of up to $2.486 billion.

There are two ways to perform these audits. One is manual, which is old and slow as we know, but for speed, we go for automated audits. The outcome of a security audit varies, depending on the choice of organization. Security audits help businesses to avoid security breaches and maintain risk management for the dynamic prosperity.

What are Blockchain security audits?

It is a comprehensive examination of a system's security, encompassing all of its data. This is essential to ensure the accuracy and compliance of the system with regulations.

There are four types of blockchain audits.

Financial Audits.

This type of audit includes information about financial records like transactions and balances to ensure compliance with accounting standards, organizational policies, and accountability.

Financial Audits help organizations maintain financial accountability, trust among shareholders, and transparency

Security Audits.

It includes the security measures implemented within blockchain systems to point out their weaknesses and threats to protect against external attacks.

Smart contract Audit.

Blockchain smart contract audit determines the identification of coding errors and potential exploits that could endanger the security of smart contracts. They make sure that codes will behave with accuracy and security.

Compliance Audit.

Such audits are essential in healthcare, financial organizations, and supply chain management. Where data handling and protection are a major priority.

A Compliance audit ensures that a blockchain system meets all the needed legal and regulatory obligations.

The blockchain audits will ensure that the system and networks are secure from all kinds of attacks, specifically phishing attacks, Sybil attacks, and routing attacks. They will also deal with cyber threats and misfortunes. Now we will try to understand the working process of blockchain audits.

Cost and cost factors of Blockchain Audits

According to ScienceSoft expense associated with a blockchain security audit typically falls within the range of $5,000 to $50,000.

Several factors contribute to this cost, including:

Extent of blockchain system:

The extent of the blockchain system components under scrutiny.

Compliance obligations:

Industries like BFSI and healthcare, governed by stringent regulations, demand robust data privacy and security measures.

Team size:

While a focused compliance audit can be managed by a single seasoned auditor, comprehensive audits with remediation services necessitate a larger team with diverse skill sets.

How Blockchain Audit Works?

There are four major phases of the blockchain audits.

Data Collection.

After the collection of data related to the blockchain system, this includes smart contract codes, user identities, access logs, and transaction records. The accuracy of this data is very important for a detailed audit and accurate results.

Analysis.

The genuine work starts now. Collected data will go through a proper check and balance through different tools and techniques. In this step, audits will fix any irregularities, loopholes, weaknesses, or compliance issues disturbing the performance of the blockchain system.

Verification.

This step is crucial for ensuring data accuracy. This step confirms the accurate recording of all transactions and smart contracts, deprived of any fraudulent entries.

Reporting.

The detailed and processed data is now added in a report to convert it into a document announcing it is official. It includes all the information about the audit process. The report will also address issues, recommendations, and solutions. Adding this official report to the account of the blockchain system is critical for organizations that cannot share it with security.

Let’s discuss its distinctive characteristics to know more about blockchain audits.

Unique features of Blockchain Audits

Blockchain audits involve several unique examination processes that distinguish them from traditional audits

Immutable Transactions: Audits take advantage of the immutability of blockchain transactions, ensuring that once data is recorded, it cannot be altered. This helps prevent fraudulent actions against critical data.

Decentralized Verification: Unlike traditional audits, blockchain audits operate within a decentralized network. This reduces the risk of operation failures and enhances the security and reliability of the audit process.

Comprehensive Examination: Blockchain audits thoroughly examine compliance issues, bugs in smart contracts, and other security concerns. This comprehensive scrutiny ensures that potential vulnerabilities are identified and addressed.

Real-Time Monitoring: Blockchain audits often involve real-time monitoring of transactions and system activities. This enables auditors to quickly detect and respond to any anomalies or errors as they occur.

Efficiency and Speed: The audit process in a blockchain context is typically faster and more efficient than traditional methods, thanks to the automated and transparent nature of blockchain technology. This allows for quicker identification and resolution of issues.

Blockchain Audit Mechanism.

The blockchain audit system has three major mechanisms that certify comprehensive calculations.

Significance of the Audit Trail: The audit trail is important for tracing the history of transactions and verification of legal entries, investigating suspicious activities, collaborating within the network, and establishing the integrity of the blockchain’s ledger. Which is called the Blockchain Audit trial.

Role of Audit Reports: The report helps as a roadmap for recognizing and detecting the issues through proper suggestions. Which is called blockchain audit and report.

Collaborative Audit Approach: The internal audit team works alongside external audit teams to ensure a systematic and thorough inspection and to facilitate an inclusive blockchain audit. This step is called blockchain and internal audit.

Though the technologies have gone to their peaks but still every system or technology faces some challenges and complications during operations.

Challenges Faced by Blockchain Audit Systems

Complex Data Access: Collaboration between organizations involves multiple parties with different permission levels, complicating data access.

Privacy vs. Transparency: The need for privacy while maintaining transparency can be challenging.

Human Error in Data Handling: Human error is always a major factor in dealing with heavy data.

Incomplete Data Coverage: Not all the data will be saved and dealt with by direct blockchain audit systems.

Final Words:

Blockchain audits have revolutionized the security in the digital age, offering streamlined processes, enhanced trust, and fortified defenses against fraud. As businesses navigate the evolving technological landscape, embracing blockchain audits promises resilience and confidence in the face of digital threats, ensuring a future of heightened security and trust

Author Bio: Stacy Dubovik - Financial Technology and Blockchain Researcher

Stacy joined ScienceSoft in 2020, bringing in her expertise in large-scale digital transformation projects and practical knowledge of the finance domain. Stacy frames ScienceSoft’s service offerings and technology guides in corporate finance, BFSI, DeFi, and blockchain. She works side by side with business analysts, software architects, and developers to help create innovative solutions that bring unique client value. Stacy continuously monitors customer expectations and technology trends in the BFSI market and explores the newly-emerging fintech and blockchain products.