What is a Honeypot Scam?

If you have been involved in the cryptocurrency world for a while, you’ve likely seen the words honeypot scam surrounding a token or two. But what is a honeypot scam? And how can you avoid them?

We’ve got everything you need to know about honeypot scams in this blog article—so read on to better protect yourself and your future investments.

What is a Honeypot Scam?

A honeypot scam is a specific type of monetary scam in which the victim is tricked into investing due to the possible returns they may gain. But when they go to cash in on these “gains” they find they are unable to trade or withdraw their investment.  Think of it like a bear trying to get a pot of honey, however, when it does get it, its paw gets stuck inside the lip, so it is unable to remove it to eat the honey.

Honeypot scams work the same way. They look enticing, often offering easy-to-attain rewards and returns—so you’ll put in your money. But the minute you try to withdraw, you will find you are unable to, thus causing you to lose everything and the perpetrator to make off with your money.

The interesting thing about honeypot scams is that certain smart contracts can be coded to take money from investors, meaning the scammer just has to set up the contract and watch the cash roll in. This makes them even more dangerous than other types of scams, like social engineering scams, which require the scammer’s constant input.

How to Exit a Honeypot Scam

Although honeypot scams can start out as social engineering scams, they are different in that once you’ve sent money, you likely won’t get it back. This is because honeypot scams use technology to rob individuals—meaning they don’t even have to do anything to ensure you don’t get your money back—the program is coded for it.

So, unfortunately, once you get sucked into a honeypot scam, there is nothing you can do to exit. You will have to accept that any money you put in is likely gone. That being said, you can report the scam to authorities and various platforms to ensure other individuals learn from your mistake and don’t get sucked into the same scam.

How to Spot a Honeypot Scam

Even though honey pot scams are impossible to exit from, they can be spotted before you risk your money. Here are the most common signs of a honeypot scam.

1. You’ll “Earn” a LOT for Investing

Remember, if it sounds too good to be true, it is, and you are unlikely to see any of the returns promised. Although some platforms, like Ethereum, do offer rewards for staking, these are few and low—for a good reason. If a platform is offering rewards at a higher rate (like 300%!), know that it is likely a honeypot scam.

2. You Found the Token on Social Media

While most tokens are discovered through social media these days, many of them are scams. This is just the nature of the business. Remember that legit cryptocurrency projects will have institutional investors and they won’t be approaching random people on social media. If someone messages you on Telegram to invest(unless you’re a known institutional investor), it’s likely a scam.

3. Check the Address on Token Sniffer

New token scams pop up daily, but most are reported within a few weeks of inception. Head over to Token Sniffer, Honeypot.is, or Dexscreener with the token address and see what these audit platforms have to say about the token. In general, if a token has any flags at all, even one, you should not buy it.

It’s important to know, however, that these platforms only work with the information they currently have. They look at the current setup of a token and current user reports. This means that although a token can be okay now, it could become a honeypot scam later if the code is changed—so don’t rely on these apps alone for your investment decisions.

4. The Chart is Straight Up

With a honeypot scam, individuals can invest, but only the creator can sell. This means honeypot tokens have odd charts that only show buy-in activity. While the creator may sell off from time to time to try to mitigate this signal, you should still see a large and sudden spike at the beginning of the tokens chart as a red flag.  

Reading cryptocurrency charts isn’t a perfect method on its own, but if you notice the odd spike on a chart, and a few of the other warnings listed above, then it is probably a honeypot scam token that you are looking at.

5. Test Your Investments

As you can see in steps 1-4, there is no surefire way to spot a honeypot scam, which is why we recommend testing any investment before buying. What does this mean? Well, take an amount of money you are willing to lose (such as $10), invest it in the token, try the various functions, and then cash out.

If you are able to get your $10 back, then you are likely fine to invest more. If you can’t get your $10 back, then you know you’ve found a honeypot scam.

It’s important to know that honeypot scams aren’t the only ones on the market. Even though a scam isn’t a honeypot, it could be a rug pull or pig butchering scam, and you could still lose your entire investment. For this reason, we recommend always discussing potential investments with someone you trust and only investing money that you are alright with losing.  

Overall, as you can see, honeypot scams are some of the worst in the cryptocurrency world due to the fact that they are coded into a token and impossible to exit. We hope this article has warned you in time to prevent you from investing in a potential honeypot scam, but if it hasn’t, we hope that you haven’t lost too much and will go forward with more complete information on how to avoid a potential honeypot scam.

Related: Hex Crypto: The Ultimate Scam