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The concept of smart contracts was first proposed in the Ethereum white paper. Since then, more and more blockchain developers have begun to use smart contracts. In fact, the biggest difference between smart contracts and traditional contracts is its arbitration method. Traditional contracts require a centralized third-party institution as a guarantee for arbitration, while smart contracts based on blockchain technology rely on pre-written code in the block. To conduct arbitration, this method is decentralized and can reduce social credit costs. However, there are still many scams about smart contracts, so how to avoid smart contract scams? Let the editor of the currency circle introduce you to smart contracts in an article.

 How to avoid smart contract scams?

There are some common red flags in malicious scam contracts, which will be outlined below. Now that we know how to access and view smart contract parameters, we can determine what is potentially malicious code.

Examples of malicious contracts

1. Mint Function (Mint) - This function allows more tokens to be minted, thereby increasing the supply and potentially allowing minters to sell these tokens on the market. This is the most common situation that causes the price of the underlying token to collapse. Disclaimer: Some tokens have mint functionality due to reliance on elastic supply. But unless there is a reason for minting money, or relevant rules exist, there should be no mint function. It is important to check who is the owner of the mint function: if the owner is a dev (developer), this is obviously a red flag; if minter is a quantity/price based smart contract, this is decentralized, no Very likely a scam.

2. Whitelist function (Whitelist) - This parameter will only appear when the project is randomly pre-sold (persale). The function is to require addresses in the whitelist to participate in the purchase to ensure that there is no oversubscription. If the project does not have a pre-sale and still has this feature in the contract, it could be used to make it impossible to sell to any address that is not on the whitelist. That is, you can buy, but not sell.

3. Freeze function (Freeze) - As the name suggests, this function can freeze asset transactions at any time. While simple, it significantly prevents people from selling tokens in the pool, locking up ether and native tokens until unfrozen.

3a. Superimpose the ownership transfer function (TransferOwnership). If the contract creator has control of the freezing function, then they can freeze the contract and then send ownership to the burn address. This "kills" the Ethereum and other tokens in the contract, and these tokens will never be able to operate.

4. It’s not specific parameters, but the more parameters a token has, the more parameters it can be attacked. Unless the token's project requires these parameters, it should not be added haphazardly to the code.

 What are the characteristics of smart contracts?

The first one is automatic execution. Smart contracts use a decentralized network architecture to automatically execute contract back-end processes, including custody, maintenance, triggering and settlement. Once this contract code is completed and sent to this blockchain. The contract will be executed strictly in accordance with the code, and humans cannot intervene. Therefore, throughout the life cycle of the contract, the company's related operating expenses will be significantly reduced.

Second, reliability. Smart contracts have a high degree of autonomy, so transactions are highly reliable and can be carried out through intermediaries. Since there is no such middleman, bribery is not possible. A man-in-the-middle may attack it, and there will be no problem of server downtime. Since there is no compromise mechanism in smart contracts, there is no way to escape this contractual obligation. Therefore, it naturally has this anti-tamper modification and safety. The third is efficiency. Compared with digital agreements executed through third parties, smart contracts are extremely efficient. Neither party to the contract needs to manually enter data and then wait for it to be processed by the other party, and there is no need for a middleman to process the transaction. Smart contracts can eliminate human errors and disputes between counterparties. Therefore, the end-to-end execution speed of the contract can be accelerated.

The third one is that it is particularly flexible, allowing users to freely establish contracts. Even if there is a strange foreigner like this. Contact can also be established through this smart contract, which brings special convenience and more efficiency to our daily cooperation or contract execution. In general, smart contracts are one of the core technologies of blockchain. It not only plays this execution role in the blockchain, it is also an application development direction of the blockchain, expanding the use scenarios of the blockchain. It is precisely because of its existence that blockchain has a broader stage.

The above content is a detailed introduction by the editor of the currency circle on how to avoid this problem with smart contract scams. Smart contracts allow blockchain to have more application scenarios, which also creates more convenience for our lives. You must know that compared with other investments, the risk of Defi contracts on Ethereum is definitely high. During the investment process, we must fully understand the basic knowledge of contract operation in order to be able to identify red flags of potential fraud.