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Honeypot is an exciting new technology with enormous potential for the security community. It isresource which is intended to be attacked and compromised to gain more information about theattacker and his attack techniques. They are a highly flexible tool that comes in many shapes andsizes. This paper deals withunderstanding what a honeypot actually is, and how it works.There are different varieties of honeypots. Based on their category they have different applications. Thispaper gives an insight in to the use of honeypots in productive as well as educative environments.This paper alsodiscusses the advantages and disadvantages of honeypots, and what the futurehold in store forthem.