NFTs, Cryptos, Smart contracts – What is the connection between all of them?
They all operate on blockchain technology without any centralized authority controlling them. However, no doubt the technology is way more advanced, yet they are still grooming to become error-free.
Let’s dig out specifically on NFTs and study their associated technicalities.
Overview Of NFTs
The NFT market unfolded itself exceptionally during 2021 when users started recognizing NFTs for their striking attributes of,
- Tokenized unique value assets
- Digital representation of real-world assets
- Improved business process without intermediaries
- Royalty privileges for digital creators
NFTs that live on the blockchain are difficult to hack, although not impossible. If not for that, news on NFT hacks wouldn’t be showing up every now and then. That’s why it is important to talk about the vulnerability aspects and work on ways of resolving them to make the NFT space bigger and better.
Decoding NFT Security Issues At Different Levels
One of the biggest challenges with the creation of NFTs is that blocks have only limited storage, and so images cannot be stored in the blockchain directly. For this purpose, an identifier(such as web address or hash) for the image is used.
The identifier of the NFT is stored in the blockchain, so a buyer technically purchases the identifier when buying an NFT. The identifier directs to the URL on the internet or IPFS run by third-party companies.
The chances of security vulnerability lie right in the creation itself. If the third-party company cease to run, the NFT potentially loses its worth.
Let’s also understand various other security risks for NFTs at different levels.
NFT Trading Platform
Although NFTs live on the blockchain, the trading activities take place on the centralized marketplace like OpenSea, Nifty Gateway, etc. These marketplaces hold the digital assets’ private keys, and therefore, the platform’s compromise leads to the assets’ loss.
A typical event happened with Nifty Gateway where the compromise of the platform gained access for the hacker to the user NFT. Using this, the hacker stole away the purchased NFT from the platform users.
Other weak security practices such as no 2FA, password thefts, etc., can lead the way for an attack.
Cyber Security Frauds
Cybersecurity threats such as emails or text messages disguising the information from an official source are sent to the users. They usually contain phishing links wherein clicking on them leaks the identity of the users and their wallet details.
The Discord server of the Fractal NFT project was hacked to circulate a scam link. Exploiting the eagerness of the users to mint and buy NFTs, the hacker made away with $150k.
Smart contracts are the core of the NFT functioning, which gives instructions on the limitations of the NFT asset and promotes smooth trading between the two parties trustable. How crucial smart contracts are that any minor weakness could lead to major exploitation of assets.
Smart Contract Risks
This presses on the need for the smart contract to pass the audit tests where the code is tested against any flaws present. Auditing of NFT smart contract code covers up for potential vulnerabilities like denial of service attacks, gas limit issues, reentrancy hack, random number generation, integer overflow and underflow, etc.
QuillAudits follow comprehensive methodologies to conduct thorough testing of the smart contracts to catch the potential flaws that can be exploited. We run the tests under various phases to mitigate the loopholes and advance the project for a secure launch in the market.
Many such instances of smart contract errors have resulted in major NFT hacks.
- The Sevens NFT collection project was hacked by exploiting the smart contract limiter through which 1000 NFTs were minted maliciously.
- Another exploit due to smart contract vulnerability was the one experienced by CryptoPunks. The bug in the coding restricted the transfer of ETH to the seller’s wallet. Using this, the attacker bought the NFT and took the money back from the contract.
Interconnection Between The NFTs And Smart Contracts
Smart contracts are the functioning block of NFTs that controls everything from granting the ownership status to simplifying the trading activities. They are built with a condition set to govern the transaction of NFTs.
Therefore NFTs are reliable on smart contracts for their execution and flow of funds between the buyer and seller during trading. In short, Smart contracts are the heart of NFTs.
Protection Offered To NFTs By Security Audits
The severity of the code’s issues can be determined through audits. It’s always better to act before it’s too late. A professional security audit firm such as QuillAudits tests the project end-to-end and securely manages the issues present.
Auditing from multiple aspects is important for forming a completely secure solution. Therefore, here’s a breakdown of the NFT ecosystem components.
Blockchain: For established blockchains such as Ethereum, the audit can be skipped. Otherwise, the underlying blockchain on which the NFTs are launched ought to be tested. Running the NFTs on the network and performing extensive research helps spot where the issue lies.
Smart contracts: As discussed above, a smart contract security audit is indispensable. The risks pertaining to the respective standards have to be studied based on the token standard such as ERC-20, ERC-721, ERC-1155, etc.
Affiliate application: Applications that support the storage of NFT metadata have to be checked for reliability and robustness.
Apart from auditing services, conducting educative sessions to teach users how to manage NFTs securely can greatly reduce the numbers lost in phishing scams. Demonstrating how to use two-factor authentication, checking the details before signing transactions, and storing wallet information securely can be covered in the sessions.
QuillAudits, as a part of safeguarding Web3 assets, offers security tips and expert talks for the benefit of the Web3 community. Connect with our experts to get a free consultation in under 10 minutes: https://t.me/quillaudits_official