What Is a Honeypot Crypto Scam and How to Spot It?

by Aug 7, 2023Blockchain Technology0 comments

Cryptocurrencies are digital assets that can be used for various purposes, such as payments, investments, or trading. They are powered by blockchain technology, which is a distributed ledger that records transactions and ensures their security and transparency. However, not all cryptocurrencies are created equal, and some of them may be scams that aim to deceive unsuspecting users and steal their money. If you want to learn more about blockchain, read our blog post about Best Books on Blockchain in 2023. One of the most common types of cryptocurrency scams is the honeypot scam, which involves creating fake or malicious smart contracts that lure users into sending money to them. What Is a Honeypot Crypto Scam and How to Spot It?

Some smart contracts may have hidden flaws or traps that allow the scammers to manipulate them or prevent users from withdrawing their funds. These smart contracts are called honeypots, because they attract users with the promise of easy profits or arbitrage opportunities, but then trap them in a situation where they cannot get their money back. The scammers then drain the funds from the smart contract and disappear with the loot.

What Is a Honeypot Crypto Scam?

What Is a Honeypot Crypto Scam?

A honeypot crypto scam refers to a prevalent form of cryptocurrency scam where scammers create fraudulent or malicious smart contracts with the intention of deceiving users into sending money to these contracts. 

These smart contracts, known as honeypots, are designed to entice users with the promise of lucrative returns or opportunities for profit. However, unbeknownst to the victims, these contracts often contain concealed flaws or traps that enable scammers to manipulate the funds or prevent users from withdrawing their money. Once the funds are deposited, the scammers swiftly drain the smart contract of its contents and vanish, leaving users unable to recover their lost funds. If you’re interested in learning more about smart contracts, we invite you to read our informative blog post on the “Top 10 Smart Contract Platforms in 2023“.

How Do Honeypot Scams Work?

Honeypot scams work by exploiting the greed and ignorance of users who are looking for quick returns or low-risk investments in the cryptocurrency market. The scammers usually create a new token or coin and launch it on a decentralized exchange (DEX) or a liquidity pool, where users can buy and sell it without intermediaries. Scammers then advertise the token or coin on social media platforms, forums, or websites, claiming that it has a high potential or a unique feature. 

The scammers may also create fake reviews, testimonials, or ratings for the token or coin, to make it seem more legitimate and trustworthy. They may also use bots or paid shills to create artificial demand and hype for the token or coin, driving up its price and volume. The scammers may also manipulate the price of the token or coin by buying and selling it themselves, creating an illusion of market activity and liquidity.

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The scammers then wait for users to buy the token or coin, hoping to make a profit from its appreciation or from selling it later. However, once the users buy the token or coin, they realize that they cannot sell it back or withdraw their funds from the smart contract. This is because the smart contract has a hidden flaw or trap that prevents users from executing certain functions or transactions.

Honeypot Scams

For example, the smart contract may have a function that allows only the owner (the scammer) to withdraw funds from it, or a function that requires users to send a certain amount of Ether (Ethereum’s native currency) to the smart contract before they can withdraw their tokens or coins. The smart contract may also have a function that changes the price of the token or coin based on certain conditions, such as time or volume, making it impossible for users to sell it at a fair price.

The scammers then use these functions to lock up the users’ funds in the smart contract and siphon them off to their own wallets. The users are left with worthless tokens or coins that they cannot trade or redeem. The scammers then delete their social media accounts, websites, or forums, and move on to create another honeypot scam with a different name and appearance.

How to Spot a Honeypot Scam?

Honeypot scams can be hard to spot, especially for inexperienced or naive users who are not familiar with how smart contracts work or how to verify their code and logic. However, there are some signs and indicators that can help users identify and avoid honeypot scams. Some of them are:

How to Spot a Honeypot Scam?

1. Check the Source Code of the Smart Contract 

One of the best ways to spot a honeypot scam is to check the source code of the smart contract that powers the token or coin. Users can use tools such as Etherscan or BscScan to view and analyze the code of any smart contract deployed on Ethereum or Binance Smart Chain (BSC), respectively. Users should look for any suspicious functions or variables that may indicate a hidden flaw or trap in the smart contract. 

For example, users should avoid smart contracts that have functions such as onlyOwner, transferOwnership, withdraw, emergencyWithdraw, setPrice, setFee, setLimit, setTime, setVolume, burn, mint, pause, unpause, blacklist, whitelist, etc., as these functions may give the owner (the scammer) the ability to manipulate the smart contract or the token or coin. Users should also avoid smart contracts that have variables such as owner, admin, fee, limit, time, volume, price, balance, etc., as these variables may indicate that the smart contract or the token or coin is not decentralized or transparent, and may be subject to change by the owner (the scammer).

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2. Check the Trade History of the Token or Coin 

Another way to spot a honeypot scam is to check the trade history of the token or coin on the DEX or the liquidity pool where it is listed. Users can use tools such as Uniswap or PancakeSwap to view and analyze the trade history of any token or coin on Ethereum or BSC, respectively. Users should look for any abnormal patterns or anomalies that may indicate a honeypot scam. For example, users should avoid tokens or coins that have a lot of buy orders but few or no sell orders, as this may mean that the users cannot sell their tokens or coins back to the smart contract or the market. Users should also avoid tokens or coins that have a sudden spike or drop in price or volume, as this may mean that the price or volume is manipulated by the owner (the scammer) or by bots or shills.

3. Check the Social Media Presence and Reputation of the Token or Coin 

A third way to spot a honeypot scam is to check the social media presence and reputation of the token or coin. Users can use platforms such as Twitter, Telegram, Reddit, Medium, YouTube, etc., to view and analyze the social media presence and reputation of any token or coin. You can follow  the top crypto influencers on Twitter, or subscribe to the best Crypto Youtube channels to enhance your crypto knowledge and stay up-to-date. 

Users should look for any red flags or warning signs that may indicate a honeypot scam. For example, users should avoid tokens or coins that have no official website, whitepaper, roadmap, team, audit, or partners, as this may mean that the token or coin is not legitimate or trustworthy. Users should also avoid tokens or coins that have fake reviews, testimonials, ratings, endorsements, awards, or achievements, as this may mean that the token or coin is not credible or reliable. Users should also avoid tokens or coins that have excessive hype, promotion, marketing, giveaways, airdrops, contests, etc., as this may mean that the token or coin is trying to lure users into buying it with false promises or incentives.

Conclusion

Honeypot scams are common and dangerous crypto scams that target users seeking quick profits or low-risk investments. These scams involve fake smart contracts that trap users from accessing their funds. Scammers drain the funds and vanish. To protect themselves, users should review source code, trade history, and social media presence. Research and due diligence are crucial before investing. Users must be cautious of unrealistic claims and unsolicited messages asking for money. By staying vigilant, users can avoid honeypot scams and safeguard their funds in the cryptocurrency market. 

If you found this blog post helpful, you may also be interested in our article on “How to Recover Stolen Cryptocurrency from MetaMask.” It provides valuable information and tips to help you reclaim your stolen funds. Check it out and safeguard your crypto assets today!

See also  How to Mine Bitcoin at Home in 2024 

FAQ

What are some examples of hidden flaws or traps in smart contracts?

1. A function that allows only the owner (the scammer) to withdraw funds from the smart contract. 2. A function that requires users to send a certain amount of Ether (Ethereum’s native currency) to the smart contract before they can withdraw their tokens or coins. 3. A function that changes the price of the token or coin based on certain conditions, such as time or volume, making it impossible for users to sell it at a fair price.

How can users spot and avoid honeypot scams?

Users can spot and avoid honeypot scams by checking the source code, trade history, and social media presence and reputation of any token or coin they are interested in buying or selling. You should look for any suspicious functions or variables that may indicate a hidden flaw or trap in the smart contract. Users should also look for any abnormal patterns or anomalies that may indicate a honeypot scam. Users should also look for any red flags or warning signs that may indicate a honeypot scam.

What are some tools that users can use to check the source code of smart contracts?

1. [Etherscan] or [BscScan], which allow users to view and analyze the code of any smart contract deployed on Ethereum or Binance Smart Chain (BSC), respectively. 2. [Solidity Visual Auditor], which allows users to visualize and audit the code of any smart contract written in Solidity, the most popular programming language for smart contracts. 3. [MythX], which allows users to scan and detect any security vulnerabilities or bugs in any smart contract.

What are some tools that users can use to check the trade history of tokens or coins?

1. [Uniswap] or [PancakeSwap], which allow users to view and analyze the trade history of any token or coin on Ethereum or BSC, respectively. 2. [DexTools] or [Poocoin], which allow users to view and analyze various metrics and indicators of any token or coin on Ethereum or BSC, respectively. 3. [CoinGecko] or [CoinMarketCap], which allow users to view and analyze the price, volume, market cap, and other data of any token or coin on any blockchain.

What are some platforms that users can use to check the social media presence and reputation of tokens or coins?

Twitter, Telegram, Reddit, Medium, YouTube.

What are some red flags or warning signs that users should look for when checking the social media presence and reputation of tokens or coins?

No official website, whitepaper, roadmap, team, audit, or partners, Fake reviews, testimonials, ratings, endorsements, awards, or achievements, Excessive hype, promotion, marketing, giveaways, airdrops, contests, etc., Unsolicited messages, emails, calls, links, attachments, etc., that ask users to send money to a smart contract address.

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