What is a Honeypot Scam?
Honeypot scams happen when scammers lure their victims to withdraw funds from a spiked or maliciously configured wallet account. The name of the given wallet can seem like highly appealing.
However, in reality, they are set up in advance to exploit the investors that are interacting with them.
There are many different levels and types of this type of scam depending on the expertise of hackers and their technical understanding of the trading technology.
What are Smart Contracts?
It is important to understand smart contracts in order to comprehend the basic type of honeypot scam. Smart contracts are automation protocols that trigger certain actions based on predetermined requirements.
Smart contracts are used for adding automation to various applications to automate certain actions such as payments and leveraged trading etc. However, there are some cases where scammers can set up smart contracts to support their fraudulent schemes. This is one of the ways to conduct a honeypot scam.
How does a Honeypot Scam Work?
As mentioned before there are many different types of honeypot scams. However, these scams have the following common steps that are likely to be present in them:
Scammers set up an intelligent smart contract with malicious intent to do their bidding.
Scammers post about a lucrative wallet account on social media sites or other places as a way to market them to susceptible victims. In most cases, scammers can also share their credentials such as private keys and seed phrase to defraud investors.
The victims who are unable to detect the foul play rush to visit and connect with the spiked wallet account in question and withdraw coins.
In order to confirm the withdrawals, the investors have to confirm payment of transaction fees. Transaction fees are high but lower in comparison to the supposed value of the expected withdrawal. Therefore, most investors agree to pay the transaction fee without realizing the scam.
The intelligent smart contract collects the fee and sends it to a secondary wallet account. The investor who is expecting to make a withdrawal is unable to do so since the transaction fees are sent to another wallet rather than confirming the transaction. In this manner, the investors are unable to get anything and end up paying for the gas fee.
Different Levels of Honeypot Scams
Honeypot scams can have various levels of difficulties and levels. Some of them are mentioned as under:
Ethereum Virtual Machine
Ethereum Virtual Machine or EVM is a level where the prospect investors might assume that they have located a blind spot in a smart contract. However, in reality that agreement is running partially and it allows the investors to lose their money.
Solidity Compiler
Solidity is a programming language that is often used to write smart contracts. The users of these types of intelligent contracts have to detect every single instance in order to locate the issue.
Etherscan Blockchain
Bad actors may also exploit unavailable information on a smart contract. Therefore, scammers with technical know-how can enter fake secondary transaction information on the network.
How to Avoid Honeypot Scams
Here are some ways to detect or escape honeypot scams mentioned as under:
The best tool for investors is to gain more technical knowledge and education and find resources to learn about such scams.
Investors must always operate with an ethical outlook and therefore they should not try to steal assets from unsuspecting wallet account holders. At the same time, the investors should treat an investor who has shared their private key and log-in credentials with skepticism.
There are some developer tools that investors can access and use to detect a possible honeypot scam setup and warn other investors.
Investors should talk to their peers in order to learn about the possible issues associated with honeypot accounts. It is best to look for audit certificates associated with smart contracts to ascertain their legitimacy.
Conclusion
Honeypot scams are usually conducted through smart contract manipulation. Threat actors can detect a small loophole in an intelligent contract or design it in a malicious manner such as adding a sweeper script. Therefore, it is best for investors to invest in detection technology to intercept such scams and increase their knowledge of smart contracts.
