What is airdrop of cryptocurrencies?

Introduction

Cryptocurrency airdrops are a marketing strategy used to promote cryptocurrency projects and startups. The core idea is to distribute native cryptocurrencies for free to users, whether they are existing customers or potential users. Often, to receive this free reward, users are required to perform some simple actions, such as subscribing to the project's social media accounts or reposting its posts.

There are various types of airdrops, and each cryptocurrency project sets its own conditions and requirements. However, in general, most airdrops share a common goal: to increase awareness of the project and attract attention to it. Some airdrops are automatically executed, and cryptocurrencies are sent to users' wallets, while others require manual retrieval.

Although airdrops are accessible to any users with cryptocurrency wallets, it is important to remain vigilant due to the risk of fraud. There are numerous fraudulent airdrops that can be used to steal funds from wallets when requesting or transferring free tokens. Before participating in an airdrop, it is always essential to thoroughly verify the project's reliability. Exercising caution is particularly crucial when providing access to your wallet to participate in an airdrop.

What is a cryptocurrency airdrop?

A cryptocurrency airdrop is a method of redistributing digital assets of a cryptocurrency project to multiple wallets. This allows developers to distribute coins and tokens among current or potential users and promote their project. Within airdrops, tokens are distributed for free, but sometimes, to receive the reward, specific tasks need to be completed. Cryptocurrency airdrops gained popularity during the initial coin offering (ICO) boom in 2017 and continue to be used as a marketing and promotion tool for cryptocurrency projects.

How cryptocurrency airdrops function

The operation of cryptocurrency airdrops is as follows: they serve as a method for distributing a modest quantity of digital assets to a range of wallets, typically hosted on platforms like Ethereum or Binance Smart Chain. There are various types of airdrops, but the fundamental concept revolves around the free distribution of cryptocurrency or tokens.

To acquire these tokens, users may be required to fulfill various tasks, such as subscribing to a social media account, registering for a newsletter, retaining a specific amount of coins in their wallet, and so forth. Nonetheless, it's important to underscore that even when these criteria are met, the receipt of tokens is not always assured.

In certain instances, rewards are exclusively conferred to wallets that engaged with the project prior to a specific date. Exemplifying this approach are projects like 1INCH and Uniswap, which employed it to motivate their early users. It's worth noting that, unlike more conventional airdrops, such rewards can hold considerable value, potentially reaching thousands of dollars.

Why do cryptocurrency projects conduct airdrops?

Blockchain projects distribute free tokens with the aim of expanding their audience and increasing the number of users. Increasing the token holder count adds more reliability to the token and contributes to a higher degree of project decentralization. Airdrops also serve as an incentive for recipients to actively use and promote the project, which aids in expanding the initial user base prior to listing on a cryptocurrency exchange.

It's important to remember that airdrops can create a false impression of project growth, so before obtaining free tokens, other factors should be taken into account. For instance, if a project has hundreds of thousands of holder addresses, but token usage remains low, it may indicate that the project is either dishonest or has failed to attract an active user community.

Are cryptocurrency airdrops and ICOs the same thing?

Cryptocurrency airdrops and ICOs are two distinct concepts, despite their association with new cryptocurrency projects. The main difference between them is that airdrops do not require financial contributions from participants, whereas ICOs represent a form of crowdfunding.

In the case of ICOs, the project team sells its tokens to raise investments from potential investors. The practice of conducting ICOs gained popularity starting in 2014 when the Ethereum project successfully used crowdfunding to finance its development. Then, in 2017, the ICO boom occurred, with hundreds of new projects utilizing this method to raise funds. You can learn more about ICOs in the article "What is an ICO (Initial Coin Offering)."

Types of Airdrops

Airdrops can take various forms and approaches. In addition to the standard method of distributing cryptocurrency to multiple wallets, there are several other types of airdrops, including airdrops with bonuses, exclusive airdrops, and airdrops for holders.

Reward Airdrop

In the case of reward airdrops, participants are required to complete specific tasks, such as reposting project messages on Twitter, subscribing to the official Telegram channel, or creating an Instagram post mentioning several friends. To receive the reward, it is usually necessary to fill out a form, providing your cryptocurrency wallet address and evidence of task completion.

Exclusive Airdrop

In the case of an exclusive airdrop, cryptocurrency is distributed only to specific wallets. To become the recipient of such an airdrop, one often needs to be an active member of the community or one of the early supporters of the project.

In September 2020, the decentralized exchange (DEX) Uniswap conducted a distribution of 400 UNI to each wallet that had interacted with its protocol before a certain date. The acquired token provided owners with the right to participate in voting and influence decisions related to the project's development.

Owner Airdrop

An owner airdrop involves the distribution of free tokens to users who hold a specific amount of cryptocurrency. To conduct such airdrops, the project's team typically takes a snapshot of users' balances at a specific moment in time and date. If a wallet's balance meets the specified minimum requirements, the user can request free tokens, proportionate to their holdings at the time of the snapshot.

Many new projects provide tokens to owners of Bitcoin (BTC), Ethereum (ETH), or Binance Smart Chain (BSC) because these cryptocurrencies have the largest and most active communities in the crypto space. For example, in 2016, the Stellar Lumens (XLM) project distributed 3 billion XLM to BTC holders, and this distribution was exclusively available to Bitcoin network participants.

How to Participate in an Airdrop

Participating in an airdrop can involve slightly different procedures depending on the particular project. However, having a cryptocurrency wallet is a common requirement to receive the airdropped tokens. For instance, you can opt for a widely used and user-friendly wallet such as MetaMask. Once you have set up your wallet, ensure that it is capable of receiving complimentary tokens. If this functionality is not automatic, it is probable that you will need to engage with the official project website to take part in the airdrop.

How to Avoid Scam Airdrops

Distinguishing a legitimate airdrop from a fraudulent one can be a complex task. Before engaging in any token giveaway, especially if it entails connecting your wallet to an external website, it's essential to conduct your own research. In some instances, scammers distribute tokens to multiple wallets and subsequently siphon off the assets when recipients attempt to transfer them to a cryptocurrency exchange or another wallet.

In certain cases, fraudulent actors create phishing websites that mimic official platforms and persuade you to link your wallet. Once you do this and confirm the transaction, your tokens can be pilfered. This tactic is frequently utilized by fake accounts on Twitter and Telegram that impersonate official profiles.

Sometimes scammers may request you to send cryptocurrency to an unfamiliar wallet in exchange for supposed free tokens. Legitimate airdrops never demand that you deposit funds or reveal your private keys. It's essential to exercise caution when scrutinizing emails and private messages.

To evade falling prey to scams, it is advisable to verify the official website and social media accounts of the project. Save the official links as bookmarks and confirm that these channels are genuinely conducting token distributions. If you have limited information about the project, endeavor to locate reviews and feedback from the crypto community. If you cannot find sufficient information, it might be wise to abstain from participating in that specific airdrop.

For enhanced security, you can establish a new wallet and email address dedicated solely to receiving tokens from airdrops. This practice will help safeguard your funds on your primary wallet against potential attacks and phishing attempts. The most crucial rule: never divulge your private keys.

Summary

Cryptocurrency airdrops provide crypto projects with an opportunity to stand out and attract new participants in the world of cryptocurrencies. They can serve as an effective means to increase your crypto portfolio by acquiring new tokens. However, it's important to remember that the number of fraudulent airdrops likely exceeds the number of legitimate ones, so always exercise caution and conduct your own research before participating.