Smart contracts may not be as smart as you think

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Blockchain technology has attracted the interest of businesses around the world. Its benefits, including immutability and transparency, led legacy non-financial companies, such as BMW and Bosch, to experiment with smart contracts to create more efficient supply chains and make smarter engineered products.

Smart contracts, which are essentially software coded into a specific blockchain, formalize and execute agreements between multiple parties, removing the need for a trusted third-party intermediary, saving time, and enabling multi-party validation based on consensus. They can be used in a variety of activities, such as wills, chess games, and even deed transfer.

But despite all of blockchain's disruptive potential and promises of much-vaunted capabilities, the number of heists targeting smart contracts has increased more than 12 times over the past two years. If they're so smart, why are we seeing such a massive increase in burglaries?

To better understand, let’s clarify the relationship between blockchain and smart contracts.

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Think of a blockchain network like Amazon's AWS platform and each of its smart contracts as a server. With blockchain, there is no single centralized server for hackers to exploit, making it more difficult for cybercriminals to use traditional hacking methods, such as Trojans, physical attacks, and ransomware . Blockchain thwarts them by eliminating a network's single point of failure.

While a blockchain network cannot be hacked, many blockchain-enabled distributed applications and smart contracts can.

Thanks to the gradually growing success and influence of decentralized finance (DeFi), large amounts of value are channeled through smart contracts, making them attractive to hackers. And this threat will likely only grow as more and more assets move on-chain with the increase in tokenized real-world assets. Hacking poses a serious threat to this burgeoning blockchain sector, as assets taken from smart contracts are extremely difficult to recover.

Threats to smart contracts

Like all code, smart contracts are subject to human error. It is...