What Are Crypto Airdrops and How Do They Work?

By now, most of us are aware of the many cryptocurrencies around us. While the debate upon their use continues, more and more people are getting involved in the crypto world. With this, come more players in the industry and their need to gain traction for their blockchain-based service. A cryptocurrency airdrop has become a very important tool for the same.

So, what is an airdrop? In essence, an airdrop is just what you have seen in the many games you play online, a promotional giveaway to players to keep them engaged. Crypto airdrops do this by giving away free crypto coins or tokens related to the service. In return, they usually ask the participants to promote their service on various social media platforms.

There have been numerous airdrops to date, with several of them still lined up for the coming weeks. Most cryptocurrency investors have had an encounter with one or the other platform’s airdrop in the past. In case you have too, but are not quite sure what it means, here is your guide to understanding what crypto airdrops are and how they work.

What Is a Cryptocurrency Airdrop?

An airdrop, in the cryptocurrency business, is a marketing stunt that involves sending coins or tokens to wallet addresses in order to promote awareness of a new virtual currency. Small amounts of the new virtual currency are sent to the wallets of active members of the blockchain community for free or in return for a small service, such as retweeting a post sent by the company issuing the currency.


Understanding a Cryptocurrency Airdrop

The airdrop is a promotional activity typically performed by blockchain-based startups to help bootstrap a virtual currency project. Its aim is to spread awareness about the cryptocurrency project and to get more people trading in it when it lists on an exchange as an initial coin offering (ICO).

To qualify for the free gift, a recipient may need to hold a minimum quantity of the crypto coins in their wallet. Alternatively, they may need to perform a certain task, such as posting about the currency on a social media forum, connecting with a particular member of the blockchain project, or writing a blog post.
 A legitimate crypto airdrop never seeks capital investment in the currency. Its aim is purely promotional. On other hand, some crypto scams involve sending micro amounts of bitcoin or other cryptocurrencies to unsuspecting recipients in what is known as a dusting scam. Users should always be vigilant about unsolicited deposits into their crypto wallets.

Are ICO and airdrop the same?

On the surface, initial coin offerings (ICO) and airdrops might seem similar, but they could not be more different. ICOs are events where a company offers to sell their new virtual currency to investors, who can buy it with alternative coins or tokens. Companies have ICOs to grow their companies by raising money from investors. These are like initial public offerings in the stock market.

Why Crypto Supporters Love Airdrops

Most crypto enthusiasts, especially those with small to no crypto holdings, love airdrops simply because they see them as free money. And in some cases, these free monies could appreciate over time or surge suddenly, providing immense profits at zero capital.

Initially, airdrops usually benefit the issuing company more, but recipients of the free coins can occasionally be in for a treat later on. It’s a win-win situation. Here are three perfect examples of successful airdrops.

What are the pros and cons of crypto airdrops?

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.

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.

How do you receive an airdrop?

Since the airdrop involves a transfer of cryptocurrencies, it needs the participants to have a cryptocurrency wallet. These are the same wallets where you store Bitcoin, Ethereum or any other cryptocurrency that you may possess already. Platforms usually ask for this wallet address at the time of registration for the airdrop.

So once the due date for the airdrop arrives, the company will transfer the promised amount to your wallet address, that is, if you are among the winners of the lot. Note that different platforms may require you to have a wallet based on the blockchain that they employ for their service. For instance, MyEtherWallet is used for tokens built on the Ethereum blockchain, while StellarPort is a web wallet for XLM and Stellar-based tokens. Most of the blockchain projects are built on the Ethereum blockchain.

Hence, you will have to note the blockchain on which the platform is being built, in order to be a part of its airdrop. As you will need a wallet subsiding with the corresponding token that you intend to get for free.

Types Of Airdrops 

Standard Airdrops: Small amounts of cryptocurrencies are transferred for free to wallet users, provided your wallet address or signing up with the new crypto platform would be sufficient for standard airdrops.

Bounty Airdrops: This works like a barter system. The wallet user has to engage in some sort of promotional activity in exchange for the airdrops.

Exclusive Airdrops: Exclusive airdrops are given to loyal users of a crypto platform. These airdrops are more like rewards.

Holder Airdrops: As the name suggests, holder airdrops are provided to wallet users for holding particular cryptocurrencies. They are usually popular ones like Bitcoin or Ether.

How Do Airdrops Work?

New blockchain-based businesses promote airdrops by offering free coins for their virtual currency on their website. The corporation then transfers the coin or tokens to established cryptocurrency wallet holders after raising awareness.

“Crypto Airdrops can sometimes be used as a ruse for illegal activity. As a result, users must exercise caution. Because they’re designed to be promotional tools, you’ll want to be on the lookout if a project is looking for funding, ” says Manish Kumar, co-founder of two blockchain-based financial markets platforms GREX and RealX.

To stand out in the crowded crypto market, Airdrops assist crypto start-ups. The life cycle of a virtual coin depends on how many people are trading and holding it. So, Airdrops assist get things started by distributing currencies or tokens to a small number of people in order to build an initial user base without forcing them to spend money on something they may not be aware of.

To avoid such scams; crypto experts have advised doing research and due diligence on the company that is having an airdrop. “Before participating in an airdrop, you should verify forums and official websites to ensure that it is legitimate,” said Kumar.

How airdrops work as a marketing tool?

Any currency including crypto gains prominence only when people start using it. The value of the cryptocurrency increases only when it is traded. With a number of currencies already available in the market, newly launched currencies need aggressive marketing. It has to stand out to succeed amidst stiff competition. Another important requirement for any new currency to succeed is that more people should know about it. This is where airdrops come into the picture. They not only help in spreading awareness about new cryptos, but also let companies build a community of loyal and like-minded users.

Examples of crypto airdrops

The cryptocurrency industry has recently seen a few crypto airdrops that took users by surprise.

OpenDao’s airdrop of SOS tokens rewarded all non-fungible token (NFT) creators, collections and enthusiasts who had previously made transactions on the OpenSea NFT marketplace. Recipients did not have to complete any task other than manually claiming the token from the website. The airdrop helped OpenDao grow its Twitter following to over 60,000, and more than 120,000 addresses claimed the token.

A similar initiative came from the Gas DAO, which issued the GAS token on the Ethereum blockchain. Anyone who ever paid $1,559 or more in gas fees on Ethereum was eligible for the airdrop, with tokens claimable via the website. More than 57,000 addresses claimed the airdrop. The GAS token provides voting rights in the Gas DAO, which aims to be the voice of the Ethereum network’s active users.

The third example is the LOOKS airdrop orchestrated by the LooksRare team. Users with over 3 ether in transaction volume on OpenSea between June 16, 2021, and Dec. 16, 2021, were eligible for LOOKS tokens after listing an NFT for sale on the LooksRare marketplace. Users holding the LOOKS token receive a share of the trading fees generated by the LooksRare platform. Additionally, users can stake LOOKS to earn more tokens.

Stay aware of airdrop scams

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