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Understanding Honeypot Scams and How Web3 Antivirus Spots Them

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Mar 29, 2024

Despite their appealing name, much like the sweet trap they're named after, honeypot scams have no friendly intentions in the world of digital assets.

As the crypto world grows, the complexity of scams targeting unsuspecting investors increases, too.

Take a honeypot scam, for example. This is a cunning trap that lures individuals with the promise of profit and then ensnares their funds irretrievably.

In this blog post, we’ll delve into honeypot scams, look into their workings, real instances, and prevention methods, and share how Web3 Antivirus can help you protect your crypto from this sophisticated fraud technique.

What is a honeypot scam?

A honeypot scam is when tokens are marketed as big-money investments.

The idea of huge profits draws investors in, but as soon as they put their money down, they discover it's stuck with no way back.

How does a honeypot scam work?

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The operation of honeypot scams unfolds through several calculated steps:

  1. Creation of a fake token. Scammers launch a new cryptocurrency or NFT that is often backed by convincing marketing to draw investor interest.
  2. Smart contract manipulation. The underlying smart contract allows purchases, but it hides clauses that stop users from selling or transferring tokens or doing any similar transactions with them.
  3. Artificial price inflation. Initial transactions, possibly executed by the scammers themselves, inflate the token's price, which creates an illusion of high demand and profitability.
  4. Investor entrapment. Attracted by the rising value, investors buy the token, only to find they cannot sell it later due to the smart contract's restrictions.
    Profit withdrawal by scammers. With investors unable to sell the acquired tokens, scammers withdraw the inflated funds and leave a trail of financial devastation.

The current landscape of honeypot crypto scams

In January 2024, investigations uncovered a sophisticated scheme involving the creation of 979 honeypot contracts in the two months prior.

The research also shed light on the misuse of Telegram channels to market these scams, with at least five such channels identified. Actors compensated to promote these schemes misled victims into investing.

What’s more, in February 2024, a cyber offender engaged in multiple deceptive schemes, successfully executing nine separate honeypot scams and illicitly securing $3.2 million.

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Practical tips on how to protect your tokens from honeypot scams

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As scammers get craftier, we've got to step up our game, too.

Here are advanced tips to help you sidestep honeypot traps:

✅ Conduct thorough research

Explore every facet, from the token's history to the team's background. Don't merely skim the surface — delve deeply into the details.

✅ Choose tokens with audited smart contracts

Go for tokens whose smart contracts have passed checks by well-known third-party companies. These firms are pros at examining a contract’s safety and how it works, spotting hidden flaws or harmful code.

✅ Leverage decentralized exchanges with liquidity locks

Invest in tokens on DEXs that enforce liquidity locks. This mechanism ensures liquidity providers cannot withdraw their funds for a predetermined period, which greatly reduces the risk of honeypots and other scams.

✅Stay in the loop about crypto trends and news

Stay clued into the latest in crypto trends and scams by following trustworthy news and expert advice. Staying informed can help you tweak your investment approach on the fly.

✅ Use secure wallets

Picking a secure wallet is key for your safety. Make sure to choose one with strong security measures and keep it up-to-date. Also, don't forget regular backups of your wallet to protect against unexpected loss or theft.

How can Web3 Antivirus protect your crypto assets from honeypots?

Honeypot scams can be sly, yet our Web3 Antivirus extension spots them fast, thus ensuring your tokens stay secure.

Here’s how W3A works:

1️⃣ W3A begins by running simulated transactions with tokens in a testing setup.

It performs actions like buying, selling, transferring tokens, and approving their use to sniff out any honeypots.

W3A takes an extra step to evaluate the results of these activities. For instance, it simulates the transfer of a specific number of tokens, like 10, and then checks the receiving wallet to ensure the correct number of tokens arrived. This helps verify the accuracy of the transfer process.

2️⃣ Likewise, if you try to sell tokens — say, 10 tokens hoping to get back 100 ETH — W3A carefully checks how much ETH you actually get. It also helps figure out the transaction fee percentage and whether the deal really makes sense.

3️⃣ W3A wraps up its checks by making sure the token sticks to ERC20 standards. This way, you can go ahead and buy it, knowing it matches your requirements and functions as it should.

Closing thoughts

Dealing with honeypot scams in the crypto world is a bit like playing a detective — always on the lookout for clues that something's amiss.

The good news is that our Web3 Antivirus is like your trusty Watson that is always there to help you spot the trouble.

Yet, while being cautious, don't forget to take a breather and not take things too seriously.😃

Stay alert and informed, and remember to enjoy the journey safely and wisely.

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