What is Honeypot Crypto Scam? You Must Be Careful Buying Micin Coins!

Bittime - Honeypot crypto scams are scams that can result in financial losses for unwary investors. In these schemes, users are often caught in a situation where they cannot sell or transfer the tokens they have purchased. 

This article discusses two types of honeypot scams and how to avoid them so you don't become a victim.

What is a Honeypot Scam?

A honeypot scam in the crypto world is a scam designed to attract the attention of crypto users, but ultimately results in the loss of valuable tokens such as ETH or SOL. 

There are Two Common Methods in This Scheme

Both of which involve flawed contracts. A more common method is the sale of tokens, often meme coins, on decentralized exchange (DEX). 

However, the function of these tokens can blacklist buyers, so they cannot resell them.

According to FTC estimates, crypto fraud causes losses of more than $1 billion annually to investors. Unfortunately, many of these scams go unreported in the crypto industry. Here are some types of crypto fraud and how they work.

How Does the Honeypot Scam Work?

While there are other types of honeypots that involve sending tokens to fraudsters' wallets, we will focus on meme coins with malicious functionality because these are more common. 

Here are the steps on how the honeypot scam works:

1. Creating a Malicious Token

First, fraudsters create token contracts that have a blacklist feature. This feature allows contract creators to blacklist wallet addresses that purchase tokens. This process can be automated via smart contracts, and a whitelist function can allow sales by specific addresses.

2. Launching Token on DEX

After that, the fraudster launches the token on a decentralized exchange (DEX). Sites such as Dexscreener and Dextools are often used to search for meme coins with liquidity on DEXs, where honeypot tokens are often found by unsuspecting victims.

3. Promote via advertising or social media

To attract early buyers, fraudsters may run ads or promote new coins on social media platforms or Telegram. They often create simple websites, new X accounts, and Telegram groups to give the impression that the coin is legitimate. Once the scam is complete, the Telegram group and Twitter account will usually be deleted.

4. Trigger Token Function

When buyers exchange ETH (on an ETH-based platform) for tokens, their wallet addresses are recorded and blacklisted by the contract. Whitelisted addresses may be able to sell, so the honeypot creator or his team can sell tokens into the liquidity pool. This makes trading look more natural, with occasional pullbacks on bullish charts.

5. Draining Pool Liquidity

DEX tokens use pool liquidity, which allows traders to exchange ETH for other tokens in the pool. However, fraudsters have a time limit. Audit tools such as GO+ Security, Quick Intel, and Token Sniffer scan token contracts. At some point, the token will be marked as a honeypot.

The fraudsters then sell their token stash into the liquidity pool, draining the pool. Another alternative is to close the liquidity pool and withdraw ETH. 

Many traders are aware of this, so fraudsters may lock or burn liquidity to make tokens appear legitimate.

Read too 5 Decentralized Exchange (DEX) Solana Teratas

Best Honeypot Detection Tool

Some crypto tools can help you detect honeypots, although these solutions are not always perfect. Tokens with blacklist or whitelist functionality are not always honeypots. Once the function is triggered, the tool can detect honeypots.

1. Honeypot.is

Honeypot.is checks honeypot tokens on Base, Ethereum Mainnet, and BSC. You just need to copy the token address from Dexscreener or a similar site and paste it into the box. 

This application simulates buying and selling to determine whether tokens are blacklisted or have high transaction taxes.

2. De.Fi Scanner

Scanners in De.Fi can help you identify honeypot scams and evaluate the token's overall health score. You may still need to do further research.

3. TokenSniffer

TokenSniffer offers a more comprehensive evaluation of tokens and is considered the gold standard by many. To check a token, simply paste the token contract address in the box provided.

Read too Tips and Tricks for Using Dexscreener for Crypto Analysis

Can You Get Out of the Crypto Honeypot?

The best way to get out of a honeypot is to not get stuck in it. If you've done your research with a token scanner and checked for locked or burned liquidity, you can make a small test purchase and then sell the tokens. 

However, there is often no way to escape the honeypot. 

If fraudsters withdraw liquidity, it is too late.

Conclusion

Honeypots are one of the common scams on decentralized exchanges that target unsuspecting users. 

Although trading altcoins on DEX platforms can be profitable, risks remain and require additional research before investing. 

Use a token scanning tool like TokenSniffer to help guide your decisions. However, keep in mind that these tools are not perfect and may provide delayed results. Carrying out test transactions and evaluating feedback from the community is also very important.

FAQ

FAQ 1: What is a honeypot scam in crypto?

A honeypot scam is a scam where users buy tokens that cannot be sold or transferred back. Fraudsters use smart contracts that blacklist buyers, so they cannot issue the tokens they have purchased.

FAQ 2: How to avoid honeypot scams?

To avoid honeypot scams, do thorough research before purchasing tokens. Use a token scanning tool like TokenSniffer and check whether the token contract has a blacklist or whitelist feature. Additionally, make trial purchases of small amounts to test liquidity.

FAQ 3: What should I do if I get caught in a honeypot scam?

If you get caught in a honeypot scam, unfortunately, there's not much you can do. You can try sending tokens to another wallet you control, but this often doesn't work. It is important to always do your research and be careful before investing.

How to Buy Crypto on Bittime

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Check the exchange rate BTC to IDR, ETH to IDR, SOL to IDR and other crypto assets to find out today's crypto market trends in real-time on Bittime.

Also, visit the Bittime Blog for interesting updates and educational information about the crypto world. Find reliable articles about Web3, blockchain technology, and digital asset investment tips designed to enrich your crypto knowledge.

Reference

Eric Huffman, What is a Honeypot Crypto Scam?, Accessed January 7, 2025

Author: IN