What are Crypto Airdrops?
Airdrops are a marketing tool used by cryptocurrency projects to encourage people to use their platform.
By Anna B Kiwanuka
Not to be confused with Apple’s AirDrop feature, a crypto airdrop is a marketing tactic in which developers of a certain blockchain project send users tokens or NFTs for free. The allure here is that it is free, and the aim is for developers to promote their project before it officially launches.
Airdrops are a marketing tool used by cryptocurrency projects to encourage people to use their platform. As part of an initial sale or as an incentive for promoting the brand, new projects may airdrop cryptocurrency into your wallet.
Airdrops are a method of obtaining digital currency without having to purchase it. Here is a deep dive into what exactly they are and how they work.
There are several situations where one might decide to initiate an airdrop, but the effect is always the same. The crypto investor receives some amount of coins or cryptocurrency tokens, often for free or for executing a simple task. In some cases, you may also have to identify yourself through the know your customer (KYC) verification to participate in an airdrop program.
Crypto airdrops might be a reward for signing up for a newsletter, following the project’s social media pages, or another way to bring attention to the brand and attract more people to the platform.
Platforms can also decide to airdrop governance tokens. In addition to their monetary value, governance tokens give holders voting rights and let them influence significant decisions regarding the project.
Types of Crypto airdrops
Although their main purpose is to incentivize users, crypto projects may give away free crypto in a variety of conditions.
The following are the most common airdrops you’ll see:
- Standard airdrop
A standard cryptocurrency airdrop transfers an amount of native coin or token into existing wallets as a marketing strategy. It’s usually to promote the brand and encourage more people to adopt the asset, often during their initial coin offering. Standard airdrops require participants first to sign up using their name and email address. Doing so will automatically set up an alert to notify them when the airdrop takes place and also gives them instant entry into the virtual event.
- Bounty airdrop
Marketing a new project needs manpower, and bounty airdrops are a great way to construct a community. This airdrop requires users to complete specific tasks, such as promoting the project on Twitter by using specific hashtags, in order to be eligible.
These activities could include:
- Sharing a post about the blockchain project on Twitter or other social media platforms
- Signing up for the project’s email newsletter
- Joining a forum to discuss and participate in the project
It takes a bit more work to get a free token through a bounty airdrop as opposed to a standard airdrop, but the activities usually aren’t demanding.
- Exclusive airdrop
As the name indicates, an exclusive airdrop is reserved for the VIP group, a selected community members who have proven their loyalty through consistent engagement with the platform. Such members might be the most active in discussions, developers actually contributing to the project, or others. Eligibility criteria varies from project to project.
- Holder airdrop
In a competitive business like blockchain, it’s critical to let potential clients know you exist. Holder airdrops are a method of distributing tokens to other token holders. Users who have EOS tokens, for example, would be able to get the new tokens in an EOS-based airdrop, and the quantity they receive would depend on how many EOS tokens they have. This allows emerging projects to break through the clutter and reach out to an existing user base.
- Hard Fork Airdrops
When a blockchain is hard forked, it creates a new branch in the chain. This can involve creating a new token to distinguish between the two co-existing chains. During a hard fork, holders of the original coins are automatically airdropped tokens for the new chain.
How do they work?
Different startups have different ways to launch airdrops, but there are a few standard practices. First and foremost, users interested in receiving a specific token or NFT have to own a wallet to store the airdropped item. Users are typically required to join, follow, and share the project’s social media channels, along with engaging with community groups on platforms like Discord and Telegram. Airdrops typically have a registration window with limited spots for participants to sign up and join before a specific deadline. However, airdrops can occur more than once depending on reception, so missing out the first time around isn’t always terminal.
Crypto airdrops can be a great way to add to your crypto portfolio without having to buy any assets using fiat currency.
Some ways to track down crypto airdrops are:
- Performing regular searches online for crypto airdrop opportunities
- Following airdrop aggregators and signing up for their exclusive airdrops
- Signing up for new platforms to take advantage of any standard airdrops they offer
- Monitoring up-and-coming projects to prepare for bounty airdrops
Taking advantage of an upcoming airdrop is mostly a matter of keeping up with developments and jumping on opportunities as they arise.
When it comes to taxation, the tax amount is decided by the token’s fair market price at the time of airdrop. This is significant for people who hold cryptocurrency in their wallet. Just by holding these coins, you could be liable to pay taxes for keeping that income. If you dispose of your airdropped asset, you may also need to pay short-term or long-term capital gains on any increase in its value during your holding period.
Now I know the next important question for you is, are they worth it?
Besides being a highly effective marketing strategy, airdrops also pretty much guarantee widespread distribution. Many cryptocurrency or NFT projects are built on or are a hard fork of an existing blockchain, such as Ethereum and Bitcoin. Holder airdrops are popular because many in the crypto space already own ETH or BTC (or other cryptos related to the project), and it guarantees a wide distribution model.
Crypto airdrops could be a way to bolster your crypto portfolio without having to buy digital assets. They could also help you get on the ground floor of a new platform.
However, airdropped assets could just as easily be worth nothing. You could spend time looking for and claiming airdrop opportunities, only for the price of the airdropped coin to drop before you have a chance to sell. Even worse, there’s the risk of giving money or sensitive information to a fraudulent platform. Airdrop scams are becoming more sophisticated and hard to spot, even for seasoned crypto enthusiasts. It’s more likely that airdrops are worth pursuing if you’re a crypto enthusiast who enjoys keeping up with new developments, and actively manages your portfolio on a frequent basis.
Crypto airdrops can be lucrative, but it all depends on the projects that are providing them. Weighing the possible advantage against the eligibility conditions is a sensible method. Before putting your faith in any undertaking, it’s critical to undertake your own extensive study.