“Honey pot in the context of cryptocurrencies refers to a type of scam, not a legitimate type of cryptocurrency. It is a digital trap designed to lure unsuspecting investors, promising high profits but with the ultimate aim of stealing their funds.
How a crypto honey pot scam works
- Setting the trap: The scammer creates a smartcontract or token that looks legitimate and attractive. It may simulate a new project, a potentially fast-growing currency or even an opportunity to “exploit” an apparent vulnerability in the contract.
- Attracting victims: The scammer aggressively promotes the token or contract on social networks, crypto forums or other channels, generating artificial hype.
- Locking mechanism: This is the crux of the scam. The smart contract is programmed so that while anyone can buy the token, only certain addresses (controlled by the scammer) can sell or withdraw the funds. Methods used can include:
- Blacklist function: certain addresses (of the victims) are added to a blacklist and cannot sell.
- Whitelist function: Only certain addresses (of the scammer) can trade normally.
- Exorbitant selling fees: The contract may impose extremely high selling fees (e.g. 99%), making it virtually impossible to withdraw the profit or even the initial investment. These fees can be changed by the creator of the contract.
- Hidden vulnerabilities: The contract appears to have a ‘vulnerability’ that the investor is trying to ‘exploit’ to make a profit, but in fact it is a trap that is blocking their funds.
- “Rug Pull”: After buying the token and accumulating funds in the liquidity pool, the scammer immediately sells his own tokens ,emptying the liquidity pool.
- Investors lose money: Investors are left with worthless tokens, which they cannot sell or transfer because their funds are blocked.
How to spot a honey pot scam
- Unrealistic promises: Any scheme that promises huge profits with minimal risk is a red flag.
- Lack of sales activity: On a price chart, you’ll see lots of purchases, but very few or no sales from other users (only from the creator, if any).
- Anonymous or undocumented team: Lack of transparency about the team behind the project.
- Suspect smart contract code: A smart contract with hidden restrictions or features that allow the creator to control sales or fees. (This requires technical knowledge to verify).
- Lack of liquidity: Check if there is sufficient liquidity in the trading pool and if multiple wallet addresses can sell the token.
- Lack of real utility: The project has no real use or innovation.
Useful tools:
There are online tools (such as honeypot.is, GoPlus Labs, TokenSniffer) that can simulate buy/sell transactions to check if a token is a honey pot scam before investing. In short, a cryptocurrency honey pot is a well-thought-out scam scheme that exploits the greed and inexperience of investors, luring them into a trap from which they can’t get their money back. It is essential to be extremely cautious and do thorough research before investing in any cryptocurrency, especially new and little-known ones.
Ready to buy or sell cryptocurrencies? Discover real-time updated prices on our “Cryptocurrency Price List” page. Plus, our dedicatedprofit calculator helps you accurately estimate the return on your investment.