What is a honeypot cryptocurrency scam? And how can you identify one?
With the rapidly increasing popularity of blockchain technology, the use case of Smart Contracts are increasing. They are becoming more popular and valuable everyday, making them the point of target for attackers. In recent years several smart contracts have been the target of attackers. The Smart contract works on decentralized network nodes, and it can be exercised in the modern blockchain network such as Ethereum.
But the trends have taken a shift towards a more proactive strategy. These attackers are currently sending out contracts that appear to be vulnerable but possess hidden traps. The word honeypot is used to describe this kind of contract. So let us find out what is a honeypot crypto trap?
Mainly the contracts that have design issues, and it allows any random user to extract Ether (the native currency of Ethereum) from the contract if they send a particular amount of ether in the smart contract beforehand. But when it is the user’s turn to utilize the flaw of the user and extract the Ether they become unable to do so. That means, for some reasons, the Ether cannot be extracted from the contract.
The primary aim of the honeypot is to let people focus on the visible weakness and ignore the signs of the second trap or vulnerability. Like any other type of fraud, people are frequently and easily deceived in Honeypot crypto scams. Because of their inadequate assumptions, people cannot measure the potential risk they are facing.
How does the honeypot crypto scam work?
In the honeypot cyber attack, the user’s money is imprisoned, and the creators of those honeypots are the only individuals who can retrieve the money from those contracts. There are three main stages through which honeypot scams are applied:
- Attackers use susceptible contracts and bait it using cash.
- The victim transfers the required money and fails to extract or take advantage of the said contract.
- Finally, the attacker retrieves all the transferred money from the victim during the exploitation attempt.
The attacker need not be skilful in order to create such traps in the Ethereum network. In reality, these attackers have the same skills as ordinary Ethereum users. In the honeypot system, these attackers need some money and a smart contract to bait people. For this scam operation, they need a computer, data that mimics a real system and programs. For real systems, they use the contracts of the Internet of Things, transit network, public utility and banking system.
Even though the contract seems like a part of the network, the system is closely monitored and isolated. The legitimate users of Ethereum are not interested in submerging themselves in these honeypots because all forms of communication with these smart contracts are considered as hostile. The honeypots are mainly released in the demilitarised zone (DMZ) of the network. With the help of this strategy, these smart contracts will be separated from the topmost production network while being connected to the networking environment. The smart contract in DMZ gets monitored while the attackers access them, and strategy reduces the probability of the main network being compromised.
Honeypots can also be deployed on the outer side of the firewall, which will face the internet. The actual location of any honeypot smart contract depends on several factors such as how relative it is to critical business resources, the intricacy of the contract and the type of traffic it wants to attract. But one thing is clear that it will always be separated from the production environment.
Type of Honeypots
Based on the design and deployment of honeypots, these smart contract scams are of two types: production honeypots and research honeypots. The research honeypots collect data and information and are operated to inspect hostile behaviour in the wild. This type of honeypot collects information on malware strains, attacker tendencies and vulnerabilities that are currently targeted by the adversaries of the environment and the outside world. The information can help in understanding the defence priorities, future investments and need for preventive security patches.
On the other hand, production type honeypots are used to deceive the attackers and detect active network penetration. For extra monitoring opportunities, honeypots are used, and it also helps in filling common detection gaps. To put it in simpler terms, both types of honeypots are used to gather information and data and research type honeypots usually gather more data than production types.
Different types of Honeypot technologies
There are a total of five non-identical types of honeypot technologies that are being used to date. Let us discuss about them below:
- Client honeypots: These types of honeypots search for malicious servers that are targeting the clients and monitor them to find out the unexpected changes and suspicious activities.
- Malware Honeypots: By using the attack channels and established replication, these types of honeypots identify the malware in the system. The honeypots have been created to perform as USB storage. For example, if any USB device is spreading malware, then the honeypot will deceive the malware and infect the simulated device.
- Honeynets: A network made out of several different honeypots are called honeynets. The honeynet follows the motives and actions of the attacker while it contains the outbound and inbound communication of the system.
- Database Honeypots: Sometimes, the structured query language injections pass the firewall without being detected. That is the reason why some organizations place a database firewall to give honeypots support and build a decoy database simultaneously.
- Spam Honeypots: Spam honeypots are used to recognize and detect the spam tests conducted by the attackers as well as block them instantaneously.
How can you spot a crypto honeypot?
To properly recognize a honeypot crypto scam, you need to look at the trade history and examine it. Generally, you can buy and sell a crypto coin anytime possible. In a honeypot scam, people can buy a lot of crypto coins, but they can rarely sell them. That will indicate the legitimacy of the cryptocurrency, and you should avoid purchasing those kinds of crypto coins. You can also use the contract transaction behaviour based on data science to classify the contracts as non-honeypots and honeypots.
How to protect yourself from honeypot crypto scams?
If you want to avoid losing money and want to get out of a honeypot scam, then this column can be of your help. There are available tools in different crypto platforms that can help you determine the legitimacy of those crypto coins. For example, you can use Etherscan on a cryptocurrency if you are buying it from the Ethereum network and if you are using the Binance, then use BscScan to scan the coin before buying it.
You can also find out the token ID of the coin and enter that on the proper website. Track the token using the token tracker button. A tab named “Holders” will appear where you will be able to see the list of wallets that hold the token and liquidity pools.
Remember the following details before buying a crypto coin. These tips will help you find out the legitimacy of the coin, so you can avoid falling into any kind of crypto scams:
- If the coins are kept in a dead wallet, the project will probably be protected from any kind of rug pulls. If none of the coins are dead or less than half of the coins are dead, then be cautious about it.
- If a trustworthy company audits the crypto coins, then the chances of it being illegitimate get eliminated.
- If any crypto coins have very few wallets, then avoid them.
- Keep checking their social media accounts and pages before buying the coins. Nowadays, social media presence is very necessary to prove the legitimacy of any company or project. Scams will have stolen features, low-quality images and videos, spam messages, no relevant information and grammatical errors.
- Properly examine the website of the project. If the development of the project website is rushed and poor, it is mostly a scam.
