I have just received some questions from newcomers to crypto about what a honeypot is, so I decided to write this article to share my experience. This is truly one of the most common scams you will encounter when participating in the cryptocurrency market.

Basically, a honeypot works like this: bad actors create a fake token or wallet to lure unsuspecting investors to send money in. They often impersonate a legitimate company and promise high returns, but when you buy the token and try to sell, you’ll find that you cannot sell or have to pay extremely high taxes, ranging from 90% to 100%. As a result, all the money you invested will be completely lost. All of this is carried out through a special malicious code embedded in the token’s smart contract.

Scammers usually use three main tactics. The first is the bait-and-switch scheme, where they offer an attractive investment opportunity but then switch to another token or investment once you’ve committed your funds. The second is pump and dump; they buy a large amount of tokens, promote heavily to artificially inflate the price, then sell everything at the peak, leaving victims who bought in at the top. The third is a pyramid scheme, where they promise to share profits if you recruit more investors.

How to recognize what a honeypot is and avoid it? First, be wary of promises of unrealistically high profits. If you see a token promising 1000% returns, that’s a red flag. Second, check how many tokens have been burned. If more than 50% are in a dead wallet, the project is relatively safe, but if fewer or no tokens are burned, you should be cautious. Third, research the development team thoroughly, read the token’s history, check news and reviews. Don’t hesitate to ask specific questions to the community or project group.

I also recommend using tools like CoinBrain, which offers a safety check feature for all tokens by deploying the GoPlus security API to automatically scan the blockchain for malicious code. The information will be displayed directly on the token’s page.

The best way to protect yourself is to conduct thorough research before investing. Avoid shady websites promising quick profits, only invest in legitimate and reputable tokens, and never share personal or financial information with anyone. Understanding what a honeypot is will help you avoid becoming a victim of these scams. The crypto market is very attractive but also very risky, so always stay vigilant and protect your investments.