Crypto Honeypot Scams and How to Avoid Them

Honeypot scams are one of the most common methods used by bad actors. It allows them to siphon off small amounts of crypto from multiple unsuspecting users, resulting in a fairly large payout over time. But what is a honeypot scam and how do you avoid it? Join us to find out.

Honeypot Scam: What is it?

Well, the name actually says a lot. These scams seem very attractive, like a big pot of honey, but they are actually traps, and when you realize it is often too late. Also, unlike some of the intricate schemes many scammers come up with, this one is pretty simple.

It all starts with the fraudster reaching out to crypto users over the internet. It can be over Twitter, Discord, Reddit or other social networking sites. The scammers will present themselves as crypto novices looking for help. Usually, they will supposedly have received a fairly large crypto payout and need help moving it to another wallet or cashing it out for fiat currency. In exchange for their help, the scammer will even offer a substantial reward to the victim.

They will even go so far as to give the victim the private keys to the wallet. This is what gets most people. After all, it’s not every day someone hands you the keys to their crypto wallet. Interestingly, most people usually end up taking the bait and logging into their wallet.

To their surprise, they will see a fairly large amount of tokens in their wallet, usually in a relatively unknown cryptocurrency. However, it doesn’t matter since the tokens are still worth a lot of money. The problem is that you cannot pay the transaction fee with this cryptocurrency. This is because the wallet usually only accepts transaction fees in the native cryptocurrency of the blockchain it hosts.

Therefore, to help this supposed “investor in need”, the victim will have to add some funds to cover the transaction fees. However, transaction fees are generally very minimal, so most people decide to add some of their crypto to cover transaction costs.

But the moment they send crypto to this person’s wallet, the funds are automatically redirected to another wallet that you don’t have access to. This is because the scammer has set up some sort of bot that sweeps all incoming tokens to another wallet. While the stolen tokens only amount to a few dollars, the scammers repeat the trick over and over, resulting in quite a large payout over time.

Honeypot scams can also take on a more complex avatar using smart contracts. Criminals create contracts that appear to have a very obvious flaw. To exploit this flaw, other users must send a certain amount of crypto to the contract. But when they do, the smart contract opens a backdoor that drains all the funds. It’s similar to a honeypot scam orchestrated over social media, only slightly more complex. Also, this method usually involves one fraudster duping another, as ordinary users rarely have the knowledge to spot a faulty smart contract.

How do you avoid honeypot scams?

Well, now that you know how these scams start and end, you should be able to spot one from a mile away. Also, if you use a block scanner, you will see more incoming transactions from different wallet addresses and just as many outgoing transactions to a single wallet address. Also, no one in their right mind would hand over their private keys. Therefore, if you come across someone doing it, it’s usually a massive red flag.

Conclusion

More people fall victim to honeypot scams every year. This is because the scheme seems quite convincing, especially when someone gives their private keys to a wallet that contains a significant amount of crypto. However, transferring funds to an unknown person is always a risky proposition and should generally be avoided. Therefore, the next time someone gives you their private keys, you know it’s possibly a scam.