Originally used as a trap to drain hackers, crypto honeypot becomes dangerous for many users who are not careful enough.

As crypto becomes more and more popular, so does the proliferation and usage of smart contracts that underpin it. This situation attracts hackers and other malicious actors who try to scam other people's crypto assets. As such, smart contracts have become one of the primary targets of hacking attacks in recent years.

Smart contracts can be defined simply as an automated agreement between a contract creator and recipient, written in code and baked into the blockchain. This makes smart contracts both immutable and irreversible. As such, susceptible contracts present an easy gateway for hackers.

Recently, there's been an uptick in a different strategy employed by smart contract developers. Instead of fixing the mess after being a victim of hacking, they lure hackers with susceptible contracts and sprung a trap that siphons their crypto wallet, hence the name.

Crypto Honeypot

 

Crypto Honeypot in a Nutshell

Simply put, honeypots are smart contracts that are purposefully designed to look flawed. This flaw allows an arbitrary user to drain a particular cryptocurrency (for example, Ether if the contract is built on Ethereum) from the contract by sending some quantity of said currency. However, when that user tries to exploit the said flaw, some other vulnerability unbeknownst to the user also opens and prevents the drainage from succeeding.

It is believed that crypto honeypots are designed with the aim to square a user's focus only on a visible weakness a smart contract might have and obfuscate any other vulnerability. As the user's draining attempt stops, their crypto-asset will be imprisoned in a way that only the honeypot creator can recover them.

 

How Does It Work?

Crypto honeypot scams work by preying upon people's assumptions. Honeypots themselves are similar to how smart contracts are developed. A creator just has to set up a smart contract and then purposefully use it as bait to lure hackers. A honeypot operation is often designed to mimic a real system that might be appealing to be attacked if it is found to have vulnerabilities.

Honeypot operations allow their creators to log and view any insights related to network infrastructure attacks. It is especially noticeable if placed on the external firewall of the internal network. As attackers that wanted to exploit a vulnerability of an internal network try to do so by hacking the honeypot first, the creator can view things like the severity of threats and the levels of traffic.

 

Why Is It Dangerous?

Although crypto honeypots were initially designed to trap hackers, it sets a dangerous precedent for anyone not being careful in engaging with crypto projects. That's because any user can find a honeypot that traps their wallets. This is especially prevalent when users tried to transact through a honeypot smart contract, with only a deposit function available without any chance of withdrawal. This categorically puts it almost the same as rug-pull even though it differs in operation.

Another more dangerous side to honeypot operations is that they can be taken over by cybercriminals that are keen on any secondarily-designed vulnerabilities. Once taken over, the honeypot operations can be turned into actual scams for other gullible users. Not only that, but cybercriminals can also use the honeypot to obtain sensitive information on researchers or organizations, serve as another layer of decoys, or even propagate misinformation.

 

How to Avoid Crypto Honeypot?

Now that you know how a honeypot scam operates, you might be asking yourself: how do I avoid it and protect my asset? Well, there are a few steps of due diligence that you can employ to scrutinize any crypto project and screen out honeypots.

One, examines the trade history of a project. A cryptocurrency should generally allow you to buy and sell it anytime you want. If a particular cryptocurrency has a lot of buy-ins but not the otherwise, it might not be a legitimate coin.

Two, see the wallet holders. If a particular cryptocurrency only has one or few wallets that hold a large sum of the currency, avoid them.

Third, scrutinize the developers. Untrustworthy actors preying through honeypot operations can usually be detected by visiting and looking at their background. If a project's website appears to be developed in a rush (such as their domain only got registered within 24 hours or less from the project's start), or their social media focuses only on "spammy messages" (aka "drop your ETH address below!")  and no links to relevant project information, then you should avoid it.

 

Apart from learning how to avoid crypto honeypots, there are other various crypto frauds you need to know so you can learn how to anticipate them.