Crypto Honeypot Scams and How to Avoid Them

The crypto industry has its fair share of scammers. Over the years, these miscreants have defrauded hundreds of thousands of investors, resulting in millions of dollars in losses. One of the reasons for their success is the large number of schemes they use to deceive investors. It almost seems like there is a new modus operandi every week of the year.

Honeypot scams are one of the more common methods used by bad actors. This allows them to extract small amounts of crypto from various unsuspecting users, resulting in a rather large payout over time. But what is a honey pot scam and how do you avoid it? Tag along to find out.

Honeypot Scams: What Are They?

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

It all starts with the scammer issuing crypto users over the internet. This can be over Twitter, Discord, Reddit or any other social networking site. The scammers will portray themselves as crypto newbies looking for help. Usually, they will presumably have received a rather 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.

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They will even go so far as to provide the victim with the private keys of their wallet. This is what affects most people. After all, it’s not every day that someone hands you the keys to their crypto wallet. Interested, most people usually take the bait and log into the wallet.

To their surprise, they will see a rather large amount of tokens sitting in the wallet, usually in a relatively unknown cryptocurrency. However, it doesn’t matter because 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 will usually only accept transaction fees in the native cryptocurrency of the blockchain it is hosted on.

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 the transaction costs.

However, 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 kind of bot that swipes 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 a rather large payout over time.

Honeypot scams can also take on a more complex avatar using smart contracts. Criminals draft contracts that appear to have a very glaring flaw. In order to exploit this flaw, other users will need to send a certain amount of crypto to the contract. However, once 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 a bit more complex. Moreover, this method usually involves one scammer tricking another, as normal users rarely have the knowledge to detect a flawed smart contract.

How do you avoid honeypot scams?

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 multiple incoming transactions from different wallet addresses and just as many outgoing transactions to a single wallet address. Additionally, no one in their right mind would hand over their private keys. Therefore, if you come across someone doing this, it’s usually a massive red flag.

Closure

Several people fall prey to honeypot scams every year. This is because the scheme looks pretty convincing, especially when someone provides 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 provides you with their private keys, you know it’s possibly a scam.

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