Cryptocurrency

Ensuring integrity of blockchain transactions: Trust through audits

Published

2 years ago

August 4, 2023

Blockchain auditing is the process of examining and verifying the data and transactions stored within a blockchain network. It focuses on assessing the integrity and accuracy of the information recorded on the blockchain to ensure it aligns with the intended rules, protocols and regulations.

Through the audit process, smart contract code is painstakingly examined to identify vulnerabilities of all levels, ranging from minor loopholes to critical weaknesses that could potentially expose millions to risk.

Auditors review and reveal centralization issues, ensure the project code functions as the developer intended, and optimize the code’s efficiency. They address key areas such as mathematical operations, logical issues, control flow, access control and compiler errors. By doing this, the probability of a smart contract vulnerability is substantially reduced, providing an essential safeguard in the world of Web3.

Sheldon Xia, founder and CEO of crypto exchange Bitmart, told Cointelegraph, “Auditing significantly reduces risks associated with smart contract vulnerabilities.”

However, auditing is not a panacea. Many projects often do not have their entire code audited due to time and budget constraints, leaving sections of the code unchecked and potentially susceptible to issues.

Furthermore, audits must be continuous, as code is frequently updated or forked, making single audits insufficient for long-term security.

In addition, there’s the challenge of ensuring that the deployed code is the one that was actually audited and not something different. This emphasizes the need for both transparency and traceability in the deployment process, underlining the necessity of a more holistic approach to security that goes beyond mere code auditing.

Auditing blockchain systems is crucial for several reasons.

Firstly, auditing ensures the verification of transactions recorded on the blockchain. This involves scrutinizing the transaction history, validating inputs and outputs, and confirming that the transactions comply with predefined rules and smart contracts. By doing so, auditing helps prevent fraudulent or erroneous transactions and maintains the integrity of the blockchain network.

Secondly, blockchain auditing plays a vital role in security and fraud detection. Auditors thoroughly review the transactions, and access controls and cryptographic mechanisms to identify unauthorized or suspicious activities within the blockchain network. This aspect is particularly critical in financial systems, supply chains and sensitive data management with high potential risks.

Auditing enhances accountability by holding participants responsible for their actions within the blockchain network. It helps identify discrepancies or inconsistencies, ensuring all stakeholders are accountable for their activities.

Furthermore, auditing instills trust and confidence among stakeholders in blockchain-based systems. By optimizing the blockchain network based on audit findings, organizations can ensure it can handle increasing transaction volumes and meet desired performance objectives.

The importance of reliable auditing processes

While auditors play an essential role in the security of blockchain networks, founders must select reputable organizations. One drawback associated with shady auditing firms is a conflict of interest. These entities may have undisclosed conflicts that compromise their independence and objectivity.

They could be financially tied to the projects they audit or maintain undisclosed partnerships or investments that introduce bias into their evaluations. Such conflicts undermine the integrity of the audit process and raise doubts about the impartiality of their findings.

Magazine: 6 Questions for Simon Davis of Mighty Bear Games

Transparency is crucial in auditing to ensure accountability and build trust. However, shady auditing firms often lack transparency in their operations. They provide limited or vague information about their methodologies, processes and auditors’ qualifications.

In March 2023, Cointelegraph reported that banks associated with the defunct crypto exchange FTX may have relied on the misleading and faulty financial information provided by proof-of-reserve examinations by auditors associated with the Public Company Accounting Oversight Board.

In another report by Cointelegraph in December 2022, the SEC’s acting chief accountant Paul Munter stressed that investors shouldn’t place too much confidence in a company’s proof-of-reserve audits. Munter said these proof-of-reserve reports lack sufficient information for stakeholders to determine whether the company has enough assets to meet its liabilities. This lack of transparency makes it challenging to evaluate the reliability and credibility of their findings, raising concerns about the validity of their audits.

Although a third party should conduct audits, the lack of true independence among many auditors means that the results are sometimes unreliable. In other words, they may have an incentive to avoid disappointing customers.

Inadequate due diligence is another drawback associated with shady auditing firms. Effective audits require thorough analysis, including a comprehensive review of project documentation, source code, financial records and security measures.

Some firms may perform inadequate due diligence or rely on incomplete or inaccurate information from their audit projects. Consequently, their reports can be misleading or inaccurate, failing to identify significant risks or vulnerabilities.

An incomplete or misleading audit can have severe consequences for the reputation and trustworthiness of a blockchain project. If investors, users or regulators discover an audit report is unreliable or conducted by an untrustworthy firm, it erodes confidence in the project.

This diminished trust can result in decreased adoption, loss of investments and potential legal repercussions.

Best practices for effective auditing in blockchain systems

In exploring best practices for conducting audits in blockchain environments, auditors must deeply understand how blockchain systems work. This includes knowledge of the underlying architecture, consensus mechanisms and transaction validation processes.

Such expertise enables auditors to identify potential vulnerabilities and evaluate the overall security and integrity of the system. Comprehensive documentation is essential to the auditing process, ensuring that all relevant information about the blockchain system is thoroughly recorded.

Technical specifications, smart contracts, cryptographic algorithms and other critical components must be documented to gain insights into the system’s functionality and identify potential risks and vulnerabilities.

Moreover, auditors should thoroughly review the codebase of the blockchain system and conduct a detailed analysis of smart contracts. This process entails assessing the code for vulnerabilities, logic flaws and potential attack vectors exploited by malicious actors.

Specialized tools and techniques may be employed to ensure the accuracy and security of the system during the code review and smart contract analysis.

End-to-end security is key

The reality is that auditing alone is not enough. A more holistic, comprehensive approach is required. While auditing addresses code-based risks, Know Your Customer procedures tackle the human risk factor, thereby providing a more comprehensive security overview. However, striking the right balance between the anonymity offered by Web3 and the trust fostered through KYC can be a delicate process.

Of course, KYC is not foolproof either, with cases of bad actors misrepresenting themselves and passing KYC checks, creating a false sense of trust around a project. This means that rigorous screening processes conducted by seasoned professionals are needed. KYC verification is only as meaningful as the process behind it is comprehensive.

Alpen Sheth, partner at Borderless Capital, a crypto venture capital firm, told Cointelegraph, “It’s important to remember that auditing should be an ongoing process to keep up with code changes and the evolution of the ecosystem. We acknowledge that security is an integral part of sustainable growth and development in the blockchain space.”

Chinese police vs. Web3, blockchain centralization continues: Asia Express

In this complex landscape, investors should also exercise due diligence. Alongside reading and understanding audit reports, they should also look for projects audited by reputable firms, track project code updates and their corresponding audits, know the team behind the project and their track record, and consider the proportion of audited code within the project.

As the Web3 ecosystem continues to grow, a multifaceted approach combining comprehensive auditing, robust KYC processes, and investor due diligence is necessary to ensure optimal security. This, alongside a concerted effort to address the challenges of centralization risks, can provide a more secure foundation for the continued growth and success of Web3 projects.

Cryptocurrency

SEC Reviews Grayscale’s Solana ETF Filing, Indicating Possible Shift in Crypto Regulation

Published

3 hours ago

February 8, 2025

The U.S. Securities and Exchange Commission (SEC) has acknowledged Grayscale’s filing for a Solana-based exchange-traded fund (ETF).

It is the first time the agency has engaged with an ETF proposal tracking a cryptocurrency that was once considered a security.

‘A Positive Sign’

The acknowledgment, relayed on February 6, caught many by surprise, given that just six weeks ago, the regulator, then led by former Chair Gary Gensler, asked the Chicago Board Options Exchange (CBOE) to withdraw similar Solana ETF filings.

Breaking the news on X, ETF expert James Seyffart pointed out that the regulator’s action was notable because it had previously refused to engage with other companies that had attempted to file SOL-based exchange-traded products. Further, he suggested it could be a “positive sign” for crypto firms, including exchanges, that the SEC has sued over claims that Solana is a security.

Eric Balchunas, Bloomberg’s senior ETF analyst, shared similar sentiments, calling it a “notable development” and adding:

“We are now in new territory, albeit just a baby step, but seemingly the direct result of leadership change.”

Earlier in the year, Seyffart had said that proposals for ETFs tracking the world’s fifth-largest cryptocurrency by market cap may face delays until 2026 because of ongoing lawsuits involving the classification of SOL as a security. The SEC had taken separate legal action against Binance and Coinbase, accusing the exchanges of offering unregistered securities for listing tokens such as Solana and Cardano.

Grayscale, the biggest digital asset manager in the world, first applied to convert its Grayscale Solana Trust into an ETF towards the end of last year. It launched the product slightly more than three years ago, and as of the start of this month, it had over 7 million shares outstanding.

Accepting its filing is just the first step in a lengthy process. The regulator now has a 240-day window to approve or deny the proposal.

CBOE Files XRP ETF Requests

Elsewhere, the CBOE has filed 19b-4 forms on behalf of several crypto investment firms, including Bitwise, Canary Funds, WisdomTree, and 21Shares, for XRP ETFs. The documents represent the next stage in the approval process, following the submission of S-1 registration statements.

While their validation is far from guaranteed, the SEC’s recent engagement with Litecoin ETF proposals suggests there could be a more favorable environment for crypto-based financial products going forward.

SPECIAL OFFER (Sponsored)
Binance Free $600 (CryptoPotato Exclusive): Use this link to register a new account and receive $600 exclusive welcome offer on Binance (full details).

LIMITED OFFER for CryptoPotato readers at Bybit: Use this link to register and open a $500 FREE position on any coin!

Cryptocurrency

Binance Test Token Pumps to $37M After Accidental Name Reveal

Published

3 hours ago

February 8, 2025

A test meme coin (TST) created for a tutorial on the Four.Meme platform experienced an unexpected surge in value following a social media post by former Binance CEO Changpeng Zhao, popularly known as CZ.

The token, originally intended as a demonstration asset on the BNB Chain, saw its market cap skyrocket as traders and influencers turned it into a fully functional cryptocurrency.

Accidental Launch

According to an X post from Zhao, the meme coin’s name was briefly visible in a single frame of the training video. After realizing it had been exposed, the team removed the video from the web. However, by then, it had already been spread across the internet.

The video and the token soon caught the eye of several Chinese crypto influencers, with their endorsements creating further interest and attracting more traders. What had started as a simple test asset quickly transformed into a fully tradable coin.

Zhao has since clarified that neither he nor Binance endorsed the coin, stating:

“This is NOT an official token by the BNB Chain team, or anyone. It is a test token used just for that video tutorial. Nothing more.”

He added that a team member had also deleted the private key for the creator address used in the tutorial, which contained 0.13% of the token supply. He further stated that no one on the training team or at Binance held any of the cryptocurrency.

Despite this, the former executive suggested restoring the instruction video while also encouraging the community by commenting, “Happy trading.”

TST’s Meteoric Rise

According to DEX Screener data, TST, which initially held a valuation of just under $500,000, saw its fully diluted value surge beyond $25 million. Eager traders drove its market cap past $37 million, with its liquidity reaching $4.5 million.

As the coin continued gaining traction, it was listed on PancakeSwap. Shortly after, it was also added to the MEXC exchange, where its price fluctuated between $0.02 and $0.04. Early investors also made substantial profits, with one trader reportedly earning $303,600 from sales and another securing $258,200.

The rapid rise of the meme coin shows the intense demand for this asset class. However, despite their popularity, they have faced growing scrutiny in recent weeks. Pump.fun is currently the subject of a proposed class-action lawsuit from investors alleging it marketed and sold unregistered securities.

Additionally, the launch of a Trump-themed meme coin in January also caused controversy within the industry. Mark Cuban criticized the initiative as a setback for crypto’s legitimacy, arguing that it weakens ownership and fuels speculation.

Senator Elizabeth Warren also called for an investigation into the Trump token, citing concerns over ethics, foreign influence, and regulatory oversight.

SPECIAL OFFER (Sponsored)
Binance Free $600 (CryptoPotato Exclusive): Use this link to register a new account and receive $600 exclusive welcome offer on Binance (full details).

LIMITED OFFER for CryptoPotato readers at Bybit: Use this link to register and open a $500 FREE position on any coin!

Cryptocurrency

Bitcoin Eyes $100K After Market Crash, Trump Approves US Sovereign Wealth Fund: Weekly Crypto Recap

Published

3 hours ago

February 8, 2025

Somewhat unexpectedly, all the drama started during the previous weekend, which is typically a calmer period for the financial markets. Well, except crypto, because it’s open 24/7.

President Trump’s implementation of new taxes on Canada, China, and Mexico brought mass panic across the charts. On Saturday evening and Sunday, BTC tumbled from $102,000 to under $100,000 and down to $97,000. It managed to catch its breath on Sunday afternoon, but the bears were back in control of the market on Monday morning.

In a matter of hours, BTC slumped hard and fell below $92,000 for the first time in about two weeks. Consequently, bitcoin had lost ten grand within 24 hours and roughly $15,000 since last Friday when it stood above $106,000.

After that multi-week low, though, the cryptocurrency bounced off and jumped above $100,000 and back to $102,000, thus completing another ten-grand move within hours. Nevertheless, it failed to sustain within six-digit territory and headed south in the following days. It flirted with the $96,000 support line on several occasions but so far has managed to maintain above it.

Hours ago, BTC pumped by a few grand and touched $100,000 for the first time since Monday, following the US jobs data. However, it couldn’t keep the momentum going and is now back below it.

The weekly charts are quite painful for most altcoins. Ethereum is down by 17% and trades well below $2,800. XRP has plunged by 18% to under $2.5, while DOGE, ADA, LINK, AVAX, and SUI have plummeted by over 20%.

In fact, OM is the only larger-cap altcoin in the green. An 18% surge since last Friday has pushed its price to well above $6.

Market Data

Market Cap: $3.359T | 24H Vol: $154B | BTC Dominance: 58.5%

BTC: $98,750 (-5%) | ETH: $2,750 (-17.25% ) | XRP: $2.49 (-18.3%)

This Week’s Crypto Headlines You Can’t Miss

Bitcoin Rallies Toward $100K as Mexico and US Suspend Tariffs. As explained above, the highly volatile trading week due to Trump’s tariffs against a few countries led to a substantial crash in the market. However, the suspension agreement between the US and Mexico sent BTC flying on Monday evening, with a brief surge toward $100,000.

Trump Approves US Sovereign Wealth Fund, Will it Buy Bitcoin? The new US President dominates the news on all fronts and his decision to approve a US sovereign wealth fund earlier this week broke Crypto Twitter as many anticipated that it will finally see the inclusion of BTC and perhaps other digital assets. However, that doesn’t seem to be the case, at least for now.

MicroStrategy Drops ‘Micro’ From Name After Record BTC Buying Quarter. The biggest corporate holder of bitcoin rebranded its name this week by dropping ‘Micro.’ The company, now called simply ‘Strategy,’ has introduced BTC into its logo and reaffirmed its leadership position in the bitcoin landscape by registering its best quarter in terms of accumulation.

Arthur Hayes Slams US Bitcoin Reserve Plans and Crypto Regulation Efforts. The BitMEX co-founder is among the critics of the supposed US bitcoin reserve as he believes that such a move would be mostly political and can be a double-edged sword. He noted that ‘what can be bought can be sold,’ and a potential accumulation of BTC by the US government could be devastating if there’s a change in the nation’s political scene in the next few years.

Crypto Analyst Says Altcoins May Take 2 Months to Recover, Here’s Why. The aforementioned crash in the crypto markets hit the altcoins the hardest, with many charting double-digit losses daily and on a weekly scale. A popular analyst believes many of them would need at least a month or two to recover as their corrections were deeper.

BlackRock Expands Crypto Offerings With Bitcoin ETP in Europe: Report. The asset manager behind the world’s largest Bitcoin ETF plans to expand its portfolio of BTC-related products. BlackRock aims to launch a BTC-linked exchange-traded product in Europe, which would become its first entry into the European crypto scene.

Charts

This week, we have a chart analysis of Ethereum, Ripple, Cardano, Binance Coin, and Solana – click here for the complete price analysis.

SPECIAL OFFER (Sponsored)
Binance Free $600 (CryptoPotato Exclusive): Use this link to register a new account and receive $600 exclusive welcome offer on Binance (full details).

LIMITED OFFER for CryptoPotato readers at Bybit: Use this link to register and open a $500 FREE position on any coin!

Disclaimer: Information found on CryptoPotato is those of writers quoted. It does not represent the opinions of CryptoPotato on whether to buy, sell, or hold any investments. You are advised to conduct your own research before making any investment decisions. Use provided information at your own risk. See Disclaimer for more information.

Cryptocurrency charts by TradingView.