FAQs- What is An Airdrop

Introduction

It's challenging for cryptocurrency investors and traders to keep track of all the new projects due to the constantly increasing quantity of new coins. As a result, several cryptocurrency projects provide airdrops to stand out and raise awareness. It is essential that crypto developers heavily publicize their token projects via social media, press releases, and crypto blogs; other advertising strategies are also investigated.

Because they view airdrops as free money, the majority of crypto enthusiasts, especially those with modest to no crypto holdings, adore them. Additionally, in some circumstances, these unearned funds can increase over time or explode unexpectedly, generating enormous returns with no outlay of capital.

Historically, crypto projects have used airdrops as a marketing tactic to encourage users to use their platform as part of an initial offering or as compensation for spreading the word about the project. In the beginning, airdrops typically favor the sending company more, but the recipients of the free coins may occasionally be in for a surprise later. It benefits both parties.

Free cryptocurrency is always welcome, but airdrops are not always trustworthy. Let's examine their operation and the most crucial elements involved.

What Is a Cryptocurrency Airdrop?

An airdrop is the typically free delivery of a cryptocurrency token or coin to several wallet addresses. Although some airdrops demand users to complete certain activities before claiming, these tokens are distributed for free. Crypto airdrops gained popularity during the ICO craze of 2017, and many cryptocurrency ventures are still using them as a marketing tactic today.

When a new cryptocurrency or DeFi protocol is introduced, airdrops are frequently used to attract attention and new supporters, which leads to a larger user base and a greater distribution of coins. Little sums of the new virtual currency are transferred for free or in exchange for a small service to the wallets of active blockchain community members.

However, the main goal of a crypto airdrop isn't to get the recipient to spend money but to promote fresh initiatives and services.

It is typically a marketing strategy to raise awareness, create communities, and assist a coin gain value early on because receivers may start trading their airdropped tokens.

Understanding Cryptocurrency Airdrops: How it works

There are various kinds of crypto airdrops, but they often involve distributing a modest quantity of cryptocurrency to several wallets. Some programs distribute NFTs instead of conventional cryptocurrency. However, they are less widespread.

Its objective is to raise awareness of the cryptocurrency project and encourage more people to invest in it when it launches as an ICO on an exchange (ICO).

As an alternative, they can be required to do a specific activity, such as publishing a blog post, interacting with a certain member of the blockchain project, or blogging about the currency on a social media platform.

when individuals sign up for an airdrop after learning about it through a cryptocurrency project's website or social media accounts and maybe after being listed on airdrop-focused websites.

Before participating, airdrop participants must fulfill any applicable airdrop requirements. The airdrop is then conducted, and to finish the airdrop, the organizer starts transactions that send the bitcoin to each eligible participant's digital wallet. Smart contracts may be used to carry out the airdrop.

Participants receive cryptocurrency in their wallets: The free cryptocurrency can be successfully received via digital wallets that support the airdropped cryptocurrency.

Types of airdrop

Crypto ventures may offer free cryptocurrency in an assortment of circumstances, but their essential objective is to energize clients. Furthermore, there are no limitations on the timing of cryptocurrency airdrops. You'll encounter the following types of airdrops most frequently:

• Standard airdrop

As a kind of marketing, a basic cryptocurrency airdrop distributes a certain amount of native coins or tokens into existing wallets. Usually, during their initial coin offering, it boosts the company's reputation and encourages more people to use the asset.

Typically, all you have to do to participate in the distribution event is create an account with the new project and give your wallet address.

• Bounty airdrop

Bounty airdrops are another type of marketing tactic, however, to obtain the digital asset, potential recipients must take part in some sort of marketing activity.

Users must perform particular things to receive a bounty airdrop, such as joining the project's official Telegram group, posting a tweet about it on Twitter, or making a post on Instagram and tagging a few people. You'll probably need to submit a form with your wallet address and evidence of task completion to receive a bounty airdrop.

• Exclusive airdrop

Cryptocurrency coins are distributed to a group of followers of an airdrop aggregator via an exclusive airdrop. The awardees typically have a history with the project, such as being an active part of the community or an early supporter of the initiative.

These independent websites disseminate information about promising cryptocurrency projects and their future airdrop occasions. Only some wallets are sent cryptocurrency by an exclusive airdrop. Decentralized exchange (DEX) Uniswap distributed 400 UNI through airdrop in September 2020 to each wallet that had engaged with their protocol before a specific date. Holders of the governance token have the option to cast a vote on future project development decisions.

• Holder airdrop

Free tokens are given away to people who have a particular number of digital currencies in their wallets through holder airdrops. The project team often takes a snapshot of users' crypto holdings on a specified day and time. Recipients can claim free tokens following their holdings at the time of the snapshot if their wallet balance matches the minimal criteria.

For instance, the 2014-launched cryptocurrency Stellar Lumens (XLM). As a gesture of gratitude to the Bitcoin network, its founders revealed a plan to airdrop lumen (XLM), its native cryptocurrency valued at $19 billion, to current bitcoin (BTC) holders.

You had to verify your BTC holdings to receive the XLM from the Stellar airdrop.

Advantages and Disadvantages of Cryptocurrency Airdrops

Advantages

Since cryptocurrency entrepreneurs started using private sales rather than public offerings to generate seed money, airdrops have become a more significant component of ICOs.

An airdrop is an exertion to stand out from the competition among bitcoin businesses, which is furious. A few companies that specialize in crypto airdrops give customers alarms, new businesses with posting administrations, and an assortment of showcasing administrations to optimize their airdrops. In this industry, there are both great and appalling companies.

Companies, brands, and entrepreneurs frequently use airdrops to reward their current holders, investors, and collectors. Depending on how much they invested in or contributed to a particular project, these individuals may receive free tokens, coins, or assets.

Michael J. Casey, the chairperson of the advisory board for CoinDesk and a consultant for MIT's blockchain research effort, stated that successful cryptocurrencies require some form of marketing. "If money is not extensively used, it has no value. And that won't happen until people put forth some costly effort to promote wider usage," He said.

By involving current owners of a particular blockchain-based currency, like Bitcoin or Ethereum, in their currency or project, airdrops seek to capitalize on the network effect.

Disadvantages

Others in the sector have, however, issued cautions over cryptocurrency airdrops. The cryptocurrency's owners might be faking its rise in value to profit right away.

For instance, Bitcoin Advisory founder Pierre Rochard tweeted a warning that bitcoin airdrops may be pump-and-dump operations.

Tweeted by Rochard: "Beware of giveaway fraud such as this:

Pre-mine tokens right away for you and your friends.

Exchange pre-mined tokens with one another to drive up the price

Entice small-scale investors with a token "giveaway."

Retail promotes the token on your behalf, dump."

Why do crypto projects perform airdrops?

Promoting a blockchain firm, project, or service is the main goal of a crypto airdrop. The group may bootstrap its venture and ensure a reasonable conveyance of tokens among its community from day one by discharging tokens to clients. Free tokens are distributed by blockchain initiatives to increase acceptance and expand their network.

Because cryptocurrency initiatives generously distribute rewards because they stand to gain the most from airdrops. Let's examine the underlying justifications for why crypto startup companies run airdrop campaigns.

Reasons Why Crypto Projects Do Airdrops

• Paying Off Users

The sustainability of a project over the long term is unimportant to investors in the crypto ecosystem, who are primarily interested in yielding the best return on investment (ROI).

To avoid adding any real value to the protocol, they jump from project to project, dropping their heavy bags after a pump and earning enormous gains from small-time investors. In reality, this kind of conduct can harm a crypto platform.

Some startups run airdrops to give away free coins to patrons who either utilize their platforms or continue to have a particular number of tokens in their wallets for predetermined amounts of time.

• Creating Awareness

Airdrops are mostly used by blockchain firms to raise awareness. ICOs dominated the early stages of crowdfunding. It was a match made in heaven for cryptocurrency firms because it allowed them to develop their network organically by spending a small fraction of their tokens.

But issues soon surfaced. During this startup "gold rush," a deluge of businesses appeared, many with only a weak and partially copied whitepaper in hand, oversaturating the market and scaring off potential investors. Many cryptocurrency supporters went on a shilling rampage, endorsing projects to receive airdrops and "pump their bags" because of the popularity of airdrops. Anyone involved in the cryptocurrency community on social media will undoubtedly concur that airdrop recipients are some of the most vociferous supporters a project could ask for.

• Understanding their local community

Additionally, since some airdrops ask recipients to fill out forms with personal information like their email addresses, social network accounts, and opinions on crypto projects, airdrops allow companies to gather data from the cryptocurrency community. The team working on a project can use this data to create targeted marketing strategies.

• Decentralizing Token Distribution

Deep-pocketed investors may use their disparate riches to their advantage in the early stages of a coin's life to achieve cheap pricing and hoard a sizable portion of its circulation quantity. The issue is that centralization, which is now one of Dogecoin's biggest downsides, is caused by massive sums of coins in the hands of a select few.

In these circumstances, projects may decide to implement airdrops to balance the distribution of a coin.

What Was the First Crypto Airdrop?

AuroraCoin (AUR) was credited with the first cryptocurrency airdrop on March 25, 2014. Every Icelandic citizen or permanent resident who presented their national ID received 31.8 AUR, which is intended to serve as the country's cryptocurrency.

What Is an NFT Airdrop?

An NFT airdrop rewards NFT holders with more tokens, just like other kinds of crypto airdrops. This is carried out to strengthen the sense of community surrounding particular NFTs, generate buzz, and reward NFT holders.

An NFT airdrop is essentially a gift or reward. Cryptocurrencies, tokens, or in the context of this article, NFTs, can be used. The company sends these presents randomly as a thank-you to its customers. Additionally, it accomplishes its advertising goal.

To promote an NFT project or related event, NFT airdrops are most frequently employed as a promotional approach. But by giving away a free item to its holders, NFT projects can continue creating value for their tokens.

How to claim an airdrop?

The method will differ from project to project, as was already indicated. However, the most crucial requirement for claiming an airdrop is a cryptocurrency wallet. A popular and user-friendly cryptocurrency wallet is MetaMask.

It can be challenging to create beyond any doubt you're qualified for up-and-coming occasions since a crypto airdrop is essentially aiming for promoting and special exercises. Even though the lion's share of them are straightforward to find, each airdrop has certain qualification prerequisites that must be met. Capability is challenging when an airdrop, including a blockchain preview, is declared after the reality. There are more possibilities to explore:

• Find websites that specialize in crypto airdrops.

• Look for the hashtag #airdrop on social media to see if anything has changed.

• Utilize different cryptocurrency administrations, merchandise, stages, and blockchains effectively.

• See-through news sources and gatherings committed to cryptocurrencies for references to current or arranged airdrops.

Having a cryptocurrency wallet is the primary condition for receiving airdrops of digital cash. An airdrop cannot be claimed or gotten without a wallet address. Whereas helpful, utilizing a trading address is unseemly for airdrops. Users should instead research the many cryptocurrency wallet options available to them to store their money. One of the most widely used wallets is MetaMask.

How to avoid airdrop scams?

Airdrops of cryptocurrencies might be frauds. Accessing bitcoin wallets and stealing other cryptocurrency assets kept in those wallets has been done using airdrops. When considering a bitcoin airdrop, proceed with caution.

Determining if an airdrop is legitimate or a hoax might be difficult. Before participating in any airdrop, you should always do your research, especially if you have to link your wallet to a website. Scammers can occasionally airdrop tokens into several wallets, but your wallet will be drained if you attempt to transfer these tokens to another wallet or a cryptocurrency exchange.

Some airdrop frauds demand that you deposit cryptocurrency to an unidentified wallet address to access your free tokens. Genuine airdrops won't ever request your money or seed phrase. Use airdrop emails and direct messages with caution.

In other instances, con artists will publicize a phony airdrop that directs users to a phishing website. They'll deceive you into entering your wallet information into a webpage that closely resembles the actual one. Other tokens will be removed from your wallet as soon as you connect your wallet and sign a transaction. This frequently occurs when people use phony Twitter and Telegram accounts that closely resemble legitimate ones.

Make sure to check out the project's official website and social media accounts to prevent being conned. Keep track of the official links and confirm that the airdrop event is taking place. If you are unfamiliar with the project, you should conduct additional research to learn what the cryptocurrency community is saying. It's usually best to disregard the airdrop if you can't locate adequate information.

You can create a different wallet and email account specifically for receiving airdrops for added security. This can protect the money in your wallet from phishing efforts related to airdrops. The most crucial rule is to never divulge your private keys to anyone.

Closing thoughts

Airdrops are a very innocent marketing ploy designed as a community incentive for new projects and their early backers. While they may appear to be little at first, they may end up being extremely valuable to cryptocurrency newcomers or enthusiasts hoping to invest for free in promising ventures early on.

Crypto airdrops allow cryptocurrency projects to stand out and flourish in the market. For those interested in cryptocurrencies, it might also be an excellent method to expand their portfolio with emerging tokens. However, be cautious and conduct your research before joining, as there are probably more phony airdrops than real ones.