Crypto Audit Firms: What Do They Do and Why Do You Need One?
The crypto sector experienced unparalleled growth between 2020 and 2021. The increase in fintech developments, the rapid adoption of digital assets, promotion and adoption by high-profile celebrities, and big brands like Coca-Cola and Tesla saw an upsurge in investment and created many crypto-millionaires.
While all of this sounds incredibly promising, there is a dark side to the world of crypto investors. The anonymity and lack of governance associated with cryptocurrency have been a drawcard for scammers and unscrupulous crypto issuers, who have progressed their skills as rapidly as the market grew.
That doesn’t mean that cryptocurrencies should be dismissed instead of embraced. It’s far more likely that the industry will introduce new standards and greater controls that keep investors and issuers safe. In fact, the big four accounting firms (Deloitte, EY, KPMG, and PwC) have all been actively involved with cryptocurrency clients, who are more than willing to do their part to ensure the legitimacy and longevity of the industry.
These firms have all stressed the importance of conducting regular audits and preparing for increased global compliance and regulatory standards but are still playing catch-up in acquiring the skills and knowledge auditors need to validate and check crypto projects. Luckily, several audit platforms have emerged in recent years that are more than adept at handling when it comes to the task at hand.
What Do Crypto Audits Involve?
You may have already heard about smart contracts - automated agreements between the contract creator and recipient. The agreement is baked directly into the blockchain and automates the execution of an agreement so all parties can be assured of the conclusion immediately, without intermediaries. Smart contracts can also automate workflows (through if/then/when programming) so that actions are only taken when certain circumstances are fulfilled.
These smart contracts, popularised on the Ethereum blockchain, have already improved the safety of crypto for investors, but even smart contracts could have flaws that fraudsters could exploit. Audits can identify and clear any vulnerabilities in a crypto project - from the team to the code. Project and smart contract auditing measures are essential for new entrants to the crypto space.
How Do Crypto Audits Work?
There are several specialist blockchain security and auditing firms that have partnered with major crypto companies and exchanges. Their goal is to improve the levels of trust prospective investors have in the crypto industry, protect investor interests, and prepare crypto companies for increased regulation and governance.
During an audit, the firm will evaluate all of the project components to determine whether there are any red flags that might indicate a problem, e.g., if the issuer isn’t legitimate or if there are any flaws in their service. Audits may be carried out through manual or automated checks or a combination of both.
The auditor will look into the source code and may ask follow-up questions. The firms may also issue blockchain projects with smart contract proofs or scores indicating whether their vulnerability risks rank critical/medium/low. Audits will also recommend fixing any loopholes they have uncovered and issuing an audit report once vulnerabilities have been repaired.
This information may then be made available to the public voluntarily - auditing firms will not reveal any issues uncovered without the permission of the project. Companies willing to publish their audit reports on launchpads and other platforms do this to demonstrate their trustworthiness and commitment to transparency and safety.
What Are the Advantages of Audits?
Crypto audits involve extensive testing, which ensures that there are vulnerabilities that would risk the project or the people who have invested in the project. Analyses and code validation help projects stay above board and identify any nefarious parties that may try to circumvent or exploit the system. This protects the community and helps new investors enter the market with confidence.
As with any financial market, the reputation of cryptocurrencies is vital to their success and widespread adoption. Market crashes could have devastating consequences for many companies and individuals worldwide, which is why improving the general public’s trust in the industry is crucial to ensuring its continued growth.
Audits also help investors determine whether or not they are investing in suitable projects and avoid rug-pull investments from unscrupulous token issuers. If a cryptocurrency is willing to work with auditors and add additional security checks to their process, it’s an indication they are willing to be transparent and take the safety and security of their investors seriously.
How Coinscope Has Become One of Leading Crypto Auditors on the Market
Coinscope is a leading early coin listing and voting site, but it also operates as an audit authority. The platform has already conducted more than 50 audits which can be viewed on the website.
During the audit, the platform analyses and monitors different parts of a new crypto project, including their website and domain info, contracts, security, roadmap, the visibility of their team, and more. They then provide an informative and easy-to-understand report and score to potential investors.
Coinscope has also become an audit partner with launchpads that include PinkSale, DxSale, and Unicrypt, some of the largest and most reputable launchpads in the crypto world.
Audit platforms have already got the modern tools and technology that the complex crypto world needs to grow and legitimise its various operations and projects. Projects should participate in audits to ensure that there are no vulnerabilities that could be exploited down the line and to demonstrate that they are willing to go the extra mile for their investors. This not only reassures investors that they can trust the projects they invest in but that the crypto industry is becoming more secure, which in turn will secure its future.