What is a Honeypot?
Honeypots have disturbed a lot of users while trying to invest in new tokens. Cyberscope’s data shows that roughly $1.4 million crypto assets have been trapped in liquidity, unable to be sold back just in April alone.
Malicious project owners have been trying to camouflage their honeypot functionality in what seems to be a normal smart contract. Cases like that will create FUD in the crypto community and make investors more and more suspicious and harder to trust on legit and worthwhile projects.
Honeypot explained
A honeypot practically means that the smart contract will allow users to buy, but never to sell back. This malicious behaviour will trap the investor funds into the liquidity and also work as a fake hype indicator, creating the feeling that the project is about to moon as nobody sells and luring more and more investors into the trap. A smart contract audit would usually warn about honeypot dangers.
What you may not know is that there are different kinds of honeypots. That's why sometimes it's hard to identify one before you invest your money. Some people will prefer to wait until they see some sales, or buy a small amount first and then try to sell it. That's still not the best practice as some malicious projects can be converted into honeypot after a specific time or on bigger amounts.
How to spot a honeypot
The best way to protect against a honeypot is to ask for a smart contract audit and read it carefully looking for any prevent trading findings.
In Cyberscope audit reports we present the Honeypot Danger in a Stop Transactions finding, explaining the user will never be able to sell again.
Another factor that can help with spotting a honeypot is checking if the project has KYC. Usually, projects that aim to deceive investors don’t have a KYC certificate and the team is fully anonymous.
How can Cyberscope help with honeypots
At Cyberscope, we track a lot of different indicators to help you make an informed decision about a project. You can find Audited and KYCed projects on our website, and you can read the extensive audit reports and understand exactly what powers the smart contract has. We also have indicators for Team ownership, burn amount and more. Finally, a honeypot project will have a warning on the coin page from our website. If however, you do fall victim to a honeypot scam you can check our guide. This is why smart contract audits, as well as KYC services, are so important for blockchain security.
