Evaluating the Security of Your Digital Asset: Exploring Smart Contract Weaknesses in NFTs

Discover the vulnerabilities present in non-fungible tokens (NFTs) and learn effective strategies to safeguard your digital assets.
Have you considered the potential security risks associated with NFTs? This article aims to shed light on common vulnerabilities found in smart contracts, often resulting in significant losses within the blockchain ecosystem.
We will delve into methods to identify and mitigate these potential security threats within the NFT landscape.
Recognizing and comprehending smart contract vulnerabilities
Smart contracts serve as the foundation of NFTs, overseeing the creation, ownership, identification, and exchange of unique and irreplaceable digital assets, all without the need for a central authority.
However, despite their revolutionary nature, these contracts possess weaknesses. NFT security issues can lead to various unintended consequences, such as asset theft or unintentional listings, as they are frequently targeted by code exploits rather than the NFTs themselves.
Smart contract vulnerabilities typically arise from high-level code languages like Solidity, Vyper, or Rust. A single error in your Solidity code can give rise to numerous NFT vulnerabilities.
Furthermore, the problem can escalate when contracts interact with one another, as a single smart contract vulnerability can potentially crash the entire application or even affect third parties dependent on it.
Commonly encountered issues:
Reentrancy: This attack occurs when multiple transactions are rapidly sent to a smart contract, allowing hackers to exploit potential errors.
Denial of Service (DOS): DOS attacks often involve rendering a function inexecutable by creating an infinite loop or exploiting Ethereum’s gas limit.
Arithmetic overflows and underflows: These errors are related to data processing within the contract and can often result in significant NFT security issues.
Default visibilities: In Ethereum smart contracts, functions have a default visibility of public, leaving room for potential exploitation by malicious actors.
Entropy illusion: This smart contract vulnerability arises when developers mistakenly assume that the blockhash function can provide random numbers, leading to manipulated outcomes.
Tx.Origin authentication: Using the tx.origin command for authentication can lead to phishing attacks, compromising the smart contract.
Race conditions: These occur when the outcome of a function depends on the order of transactions, creating opportunities for potential exploitation.
Case studies
These NFT vulnerabilities have been exploited in real-world instances, resulting in substantial losses. Here are a few examples:
NFT Trader contract compromise: On December 16, 2023, the trading site NFT Trader experienced an exploit in two of its older contracts, resulting in the theft of valuable NFTs, including Bored Apes, Art Blocks, World of Women, and VeeFriends.
Delegate.cash founder 0xfoobar identified the vulnerability in NFT Trader’s contracts and urged platform users to immediately revoke any permissions associated with compromised contracts.
Security flaw in common smart contracts library: Towards the end of 2023, Thirdweb, a firm specializing in web3 technologies, discovered a major smart contract security flaw in a widely used open-source library.
This vulnerability affected pre-built smart contracts like DropERC20, ERC721, ERC1155, and AirDrop20, potentially putting multiple NFT collections at risk.
Thirdweb initiated an investigation with its audit partners upon discovery. Fortunately, they found that this vulnerability had not been exploited in any of their smart contracts.
As part of the resolution, the company addressed the issue by patching the NFT vulnerability in the library and updating the affected smart contracts to use the updated library.
AllianceBlock token manipulation: In February 2023, ALBT, the native token of AllianceBlock, fell victim to an Oracle hack that resulted in significant price manipulation.
An exploiter tampered with an oracle in a smart contract, allowing them to manipulate ALBT’s prices and generate substantial quantities of the Bonq Euro (BEUR) stablecoin. This exploitation led to an estimated loss of around $120 million.
Hackers siphoned off approximately $5 million worth of ALBT tokens on the Bonq decentralized borrowing protocol. They also compromised the protocol’s smart contract and manipulated AllianceBlock tokens, draining about $88 million from the system.
The exploit had a significant impact on ALBT’s value, which immediately dropped by 51% and further declined by over 65% in the following days.
Omni reentrancy (July 2022): In July 2022, Omni, an NFT money market platform, experienced a significant breach due to a reentrancy vulnerability in its Ethereum contracts, resulting in a loss of $1.4 million.
A security analysis of the hack revealed that the attacker drained 1,300 ETH from the platform’s testing funds.
Omni clarified that no users’ funds were affected in the incident. Nonetheless, the event raised questions about the security of blockchain platforms and the measures required to protect against such attacks.
LooksRare DDoS attack (January 2022): Shortly after its launch on January 11, 2022, the LooksRare platform fell victim to a Distributed Denial of Service (DDoS) attack, rendering the site inaccessible.
Users encountered difficulties linking their digital wallets and faced challenges when attempting to list their NFTs. The LooksRare team took prompt action to restore the website’s functionality, although the issue regarding wallet connectivity remained unresolved for some time.
In each of the mentioned cases, the common element was the exploitation of smart contract vulnerabilities, ranging from coding errors to design flaws. This emphasizes the importance of conducting a thorough audit of NFT security issues before deploying any smart contract.
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Mitigating vulnerabilities
While the crypto ecosystem revolves around highly experimental technology, there are several measures that can be implemented to enhance the security of digital assets.
It is crucial to be aware of the permissions requested by your wallet when transacting on a platform and ensure that you do not unintentionally grant more access than intended.
For unfamiliar or less trusted platforms, it is advisable to create a new wallet and test the platform with a small amount before transferring larger sums.
Syncing your browser-based wallet with your hardware wallet can provide an additional layer of protection and an opportunity to rectify any transaction errors.
Smart contract auditing
Regular auditing of NFT smart contracts can help identify and address potential vulnerabilities. Security firms specializing in this field can thoroughly review the code, analyze vulnerabilities, and provide detailed reports.
Bug bounties
After internal audits, an NFT project can initiate a bug bounty program, inviting the public to identify and report vulnerabilities in the contract in exchange for rewards.
Proper project management
Rushing through the software development process or being negligent can result in significant losses. Therefore, proper project management is crucial in avoiding NFT security issues.
The future of smart contracts
Smart contracts are still evolving, and recent advancements have significantly enhanced their security. Communication systems between platforms are becoming more robust, and projects are employing audit firms, AI, and bot systems to promptly identify suspicious transactions.
Moreover, with increased scrutiny from law enforcement and stricter Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements in the crypto sector, it has become more challenging to launder money post-hack.
The rise of “white-hat” hackers, who help identify vulnerabilities without causing major losses to platforms, has also contributed to improved smart contract security.
However, despite these measures, it is essential to understand that no developer or programmer can guarantee that their contracts are 100% secure. Therefore, NFT users must carefully consider the risks involved.
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