Blockchain technologies are in the spotlight and will become more popular in the future. An audit of cryptocurrency is extremely important, especially given the high activity of hackers. In the world of emerging technologies and the risk of hacker attacks, attention should be paid to ensuring the security of confidential information.
An audit is necessary to protect crypto assets in a quality manner. Testing smart contracts allow you to eliminate vulnerabilities and secure private information. Audits can be carried out with the help of internal and external cryptocurrency auditors. Suppose you decide to give preference to outsourcing. In that case, you should choose a firm carefully after analyzing its projects, successes, and the level of specialists in analyzing blockchain projects and transactions. So, how to audit cryptocurrency?
So what is a blockchain audit? It is an important systematic and structured manual code review of a blockchain development project. This process is performed by experienced developers who can also use statistical code analysis tools.
When auditing crypto-currency transactions, it is necessary to analyze the evidence proving the private key’s ownership and the relevant party’s evidence to record transactions. Auditing is very important, as it can protect against errors in smart contracts that hackers can use.
Blockchain Audit Stages
Let’s talk about the most significant stages of the cryptocurrency audit.
- Source code lock
The source code version should be locked. It will help the transparency of the audit.
- Blockchain project analysis
It would help if you had an audit team well versed in the subject matter. Such a team must understand the essence of the project, its architecture, and use cases. Time must be set aside for the analysis phase.
- Review of design documentation
A key stage is checking business requirements, technical design, architectural solutions, and test cases.
- Code preview
The code needs to be checked several times.
- Static code analysis
Blockchain is a new technology, so instrumental support is very limited.
- Code quality analysis
Does the development team adhere to best coding practices? For example, it is better to avoid using repetitive code.
- Vulnerability analysis
The code is scanned to find possible vulnerabilities.
- Functional analysis
Will the code in question provide the desired functionality? It should be checked.
- Tracking and Reporting
A detailed report prepared by auditors allows you to see the problem comprehensively and find solutions.
Certified Cryptocurrency Auditor
It is a certification dedicated to the core concepts of auditing blockchain-based cryptocurrencies. A crypto auditor is a specialist who specializes in the forensic science of cryptocurrencies and blockchains.
Exam-based certification tests the auditor’s knowledge. In the case of a positive outcome, the auditor can conduct a forensic examination of the blockchain and track the exchange of cryptocurrencies.
Responsibilities of the auditor
Understanding the nature and essence of digital assets, blockchain transactions and the underlying protocols is necessary.
For example, more mature digital assets usually have more stakeholders (miners and developers). And digital assets that are pegged to other economic requirements (such as stablecoin offerings or gold-backed cryptocurrencies) may present additional risks.
It is important to consider whether transactions are performed automatically through a smart contract or initiated manually. There are risks of wrong or unauthorized transactions and so on.
It is more difficult for the auditor to verify the presence of digital assets than traditional assets. Therefore, the audit requires great skills and abilities from a specialist.
Auditors should also find out if the respective blockchain is open source or not.
Auditor’s key questions
As a rule, the auditor is faced with the following questions:
- deciding whether to accept or continue an audit engagement when an entity has engaged in material cryptocurrency transactions obtaining;
- getting an understanding of the entity’s information system for cryptocurrency transactions identifying;
- vulnerability analysis, and so on.
Auditors should consider software flaws or hack as some of the factors that can affect manual transactions. Additional complexity is also associated with asset-backed tokens in digital auditing. Such Tokens tend to create further complexity given the functionality of the smart contract. Therefore, auditors should consider other factors that determine the position of a particular digital asset in the risk spectrum.
The role of standard setters and regulators
Introducing rules to help track digital assets can protect investors and businesses. Governments recognize this fact. However, there is still no consistent regulation across jurisdictions. In India, an inter-ministerial committee proposes introducing criminal liability for those conducting transactions with private cryptocurrencies. And Luxembourg is encouraging the use of cryptocurrency assets. The International Accounting Standards Board has not included digital assets on the standards-setting agenda. However, like other relevant authorities, it continues to monitor its development.
For a successful audit, it is necessary to combine analytical thinking, a subtle understanding of the specifics of the blockchain project, and the development of new tools.
So, today’s financial statements are becoming commonplace, allowing, for example, to reflect the results of crypto-currency transactions and show material cryptocurrency balances. Analyzing tokens, smart contracts, initial coin offerings, and cryptocurrencies is very important. In addition, a growing understanding of blockchain technology will allow the development of new methods for auditing projects. And it will enable you to take better care of security.
Costs range from $50,000 to $80,000 for small to medium projects. However, for large projects, the cost of auditing contracts can reach a whopping $1,000,000.
It systematically analyzes the smart contract code that interacts with the blockchain, a cryptocurrency. The program identifies problems that are in the code and suggests solutions.
If a crypto transaction does not go through the IRS, the taxpayer may face not only outstanding fines but also criminal charges. It’s a kind of tax evasion.
It is a very lengthy event. The maximum length of an audit is three years.