In cryptocurrency, Airdrop is a marketing strategy that involves sending coins or tokens to wallet addresses. In this case active members of the Blockchain community receive small amount of the new virtual currency; the free token is sent to them for free in return for a small service.
They can retweet a post by the company that issues the currency, connecting with members of the Blockchain, writing a blog post, just basically spreading the word about the new virtual currency.
This marketing method is usually adopted by startups in the cryptocurrency space, the ultimate goal of an Airdrop is to create awareness and promote circulation of a new token or coin.
This process involves delivering tokens to the wallet of active cryptocurrency traders.
While some Airdrop are legitimate, some are seen as fraudulent and a means of stealing a trader’s wallet or personal information. But it is done mainly to get more people trading in the new virtual currency when it lists on an exchange as an initial coin offering (ICO).
A legitimate Airdrop will be promoted on the company website, social media and crypto forums. These coins are sent to specific wallets based on the Blockchain network or coins held in existing wallets.
To qualify for this free gift, receivers needs to hold minimum quality of crypto coins in their wallets.
They may need to perform a little task though ;Like retweeting or reposting a post made by the company, connecting with members of the Blockchain forum. Anything that promotes the coin or token.
NB: Crypto Airdrop is named after in reference to physical Airdrop done in aircraft, this involves the delivering of resources (food, medicine) that physically drops out of the sky.
Types of Crypto Airdrop
1. Standard Airdrop
Participants express interest in receiving their Airdrop. They have to provide a valid wallet address which is usually the only information required from them.
Standard Airdrops are time sensitive because they have a set amount of tokens to distribute with a limit on how many tokens an individual may receive. Although these type of Airdrop are popular for heir simplicity , a single user can create multiple wallets to drain the Airdrop amount.
2. Bounty Airdrop
A user has to perform certain tasks to give the new currency awareness. It can be a post on social media, tagging the company, retweeting their tweets, or writing a blog post. There may be a referral bonus or finder’s fee for individual who recruit other uses to sign up for the project’s newsletters, join the company’s Discord channel, etc.
In exchange for these tasks, users will receive points that corresponds to how large of bounty Airdrop they receive. Sometimes users might be required to earn certain amount of points before they qualify for an Airdrop.
3. Holder Airdrop
This Airdrop occurs automatically based in who is holding existing tokens and how many tokens they hold. Because wallets and Blockchain information are parts of a publicly distributed ledger, all users of Blockchain have full transparency into the wallets and distribution tokens.
The downside to holder Airdrop is individuals who may be holding tokens may not want an Airdrop. However, Holder Airdrop ensures only the largest , most interested individual receives the benefits.
4. Exclusive Airdrop
This Airdrop involves selecting specific people. They are selected not based on how much tokens they have but how based on other factors like how much time they spent on a project, money spent on non-token activity, or number of posts in a forum. This Airdrop is amore centralized way of rewarding those closest to the project, so even wallets without tokens can receive Airdrop.
5. Raffle Airdrop
This goes with other types of Airdrop. A project will state a number of Airdrop they want to give and encourage traders to earn a raffle ticket. Tickets can be earned by holding tokens, earnings points or just expressing interest. The number of individuals interested will exceed the number of Airdrop the company wants to give. A raffle occurs and a limited number of wallets will be randomly selected to receive the Airdrop.
How an Airdrop is Done on Crypto
First, Crypto currency or project decides they need an Airdrop. As a market strategy or to give incentives to investors. They will then proceed to select how to facilitate the process and who is eligible for it.
After which they launch the campaign. This involves collecting information about interested parties, usually their wallet address which is enough and sometimes email address to grow their contact list.
Once the list of Airdrop recipients is selected, the Airdrop is facilitated. Most times through the use of smart contracts, or the company may decide to use their treasury wallet to facilitate the Airdrop and publicize the transaction block to demonstrate the equitability of the Airdrop.
The transaction will show the Airdrop leaving the company’s wallet and distributing to the recipients. Airdrop recipients directly receive the tokens or coins but might not accept it. Some might add the token or coin with its address to their wallet to appropriately view the wallet balance of the token.
Crypto Airdrop Scams and How to Avoid Them
A legitimate crypto Airdrop will not seek capital investment in the currency. It is purely promotional.
Some scammers might send micro amounts of Bitcoin or cryptocurrency to unsuspecting recipients.
Some scams rely on directing an investor to attach their wallet to a phishing website in order to claim their Airdrop. Often the web3 address prompts a user to connect their wallet services eg. Trust wallet. After connecting by providing their secret phrase or key, the scam is complete at this moment. As a precaution, do not give your private keys to people you don’t trust.
Another scam involves enticing market participants to invest in a specific security in hopes of being airdropped an item. Companies may boast that holding a certain NFT in a wallet will cause owners to receive a rare airdrop. The Airdrop may be legit but the owners have enticed market activity of the NFT so they could sell at a high price.
Avoid Airdrop Scam by:
- Users should Be vigilant about any unsolicited deposits into their crypto wallet.
- Also users should be aware of the project they are investing in. Do a thorough research before investing
- Do not connect to websites you are not familiar with. Any link that you are clicking must come from the project. You can bookmark frequently visited sites to ensure that the next time you are connecting to the right site.
- Follow a project on social media, forums and on discord. This is where Airdrops and other promotions are usually publicized, but be sure you are following the right account.
Benefits of Crypto Airdrop
An Airdrop gives startups the opportunity to stand out from the crowd and be above competition. A currency is nothing if not widely used, it is important to create awareness about a new virtual currency.
Crypto currency often have the advantage of rewarding loyal patrons of specific Blockchain network. In addition, sending airdrops to all wallet or existing token holders widely distributes tokens in a manner that may nit happen naturally in the market.
Network safety is not guaranteed especially the nature of redeeming airdrops. Some Airdrops requires users to connect their wallet to suspicious websites which exposes users to scam.
Some projects prefer to focus on rewarding miners or other contributors of a network instead of releasing free tokens to non heavy contributors of a project.
Airdrops lacks liquidity and may be worthless if they are not traded in an open exchange.
Crypto Airdrop and Taxes
It all depends on the jurisdiction of where the holder is residing. US considers airdrops as part of one’s income, so taxes are filed under Federal income tax returns.
There might be difficulties in reporting taxes on Airdrop as the token may not yet be liquidated or easily accessible fair market value.
On the other hand, Airdrops are not considered taxable income until an individual has control of the token. If the Airdrop is locked or on a vesting schedule, it is not taxable income until it is received and can be traded .
In conclusion, crypto Airdrops enables a company and project to raise awareness for their coin. It is also a way of increasing the liquidity of their security by giving it away to different wallets.
Even though it has value and a way of earning free money, if users are not aware of scams related to crypto Airdrops it is usually risky.
Airdrops launches a new crypto as a way of gaining attention and followers resulting in a large user base and wide disbursement of coins.
Frequently Asked Questions
What is an NFT Airdrop?
An NFT Airdrop credits NFT holders with additional tokens. This is in order to build a stronger community around certain NFTs, create a buzz and reward NFT holders.
How do I find Crypto Airdrop?
It is often communicated and marketed to the general public to raise excitement and awareness for a token. Subscribe to newsletters or follow Blockchains on social media.
Can one make money from Airdrops?
Yes. But crypto Airdrops are for promotional purposes, to increase the use of a currency across a wide range of users. So airdrops are often not substantial amount, usually less than $10 and the tokens may not be liquid. Users might try to liquidate there holdings which quickly drops the value of the coin or token.