What Are Crypto Airdrops? A Detailed Guide

• Avinandan Banerjee
• January 07, 2022

 

Crypto airdrops refer to a marketing stunt. Here coins or tokens are sent to wallet addresses to promote the launch of a new virtual currency. A small amount of the new virtual currency can be sent to the wallets of active blockchain community members for free. Or in exchange for a small service, such as retweeting a post sent by the company issuing it.

 

What Are Cryptocurrency Airdrops?

An airdrop is a promotion conducted by blockchain-based startups to help bootstrap a virtual currency project. As an initial coin offering (ICO), it aims to raise awareness of cryptocurrency security about the cryptocurrency project and get more people to trade in it.

 

Typically, crypto airdrops are advertised on the company’s website as well as on cryptocurrency forums. The coins or tokens are sent only to current holders of crypto wallets, such as bitcoin or ethereum. 

 

A recipient may need to hold a minimum quantity of crypto coins in their wallets to qualify for the free gift. It may also be necessary to perform a specific 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.

 

Legitimate crypto airdrops don’t ask for capital investment in the currency. They are simply promotional in nature. On the other hand, some crypto scams involve sending micro amounts of bitcoins or other cryptocurrencies to unwitting recipients in what is called a dusting scam. Keeping an eye on unsolicited deposits into crypto wallets is always a good idea. It is best to learn from a cryptocurrency advisory course to never miss out on details. 

 

What Are The Different Types Of Airdrops?

Despite their primary motivation being to incentivize users, crypto projects may give away free crypto in a number of different situations. The proper cryptocurrency education can help you get the right insights into various types of crypto airdrops. 

 

Here are some of the most common types of airdrops:

 

• Standard airdrop
• Bounty airdrop
• Exclusive airdrop
• Holder airdrop

 

• Standard Airdrop

Standard cryptocurrency airdrops transfer a specific amount of native coin or token into existing wallets as a marketing strategy. During their initial coin offering, it often markets the brand and encourages more people to adopt the asset. All you need to do is create an account with the new project, and provide your wallet address during the distribution event.

 

• Bounty Airdrop

Investors use Bounty airdrops as a marketing strategy, but their recipients must engage in some promotional activity to receive the digital asset. 

 

Among these activities are:

 

• You can share a post about the blockchain project on Twitter or another social media platform
• Subscribing to the project’s email newsletter
• Participating in a discussion forum and participating in the project
• Bounty airdrops require a bit more work than standard airdrops, but the tasks usually aren’t too strenuous.

 

• Exclusive Airdrop

A crypto coin airdrop is where a group of people or the cryptocurrency developer who follows an airdrop aggregator receives crypto coins. These third-party sites publish news about crypto projects and their upcoming airdrops.

 

• Holder Airdrop

Those who have a small amount of another cryptocurrency trading in their wallets qualify for a holder airdrop. The crypto project will usually take a snapshot of crypto holdings on a specific date, then allow people to claim an airdrop based on their holdings on that date.

 

Stellar, for example, is a cryptocurrency that was launched in 2014. To pay tribute to the Bitcoin network, its leaders announced a plan. They would give airdrop lumen (XLM), its native cryptocurrency, to existing bitcoin (BTC) holders for $19 billion in 2016. 

 

You had to verify your Bitcoin holdings in order to claim the XLM reward from the Stellar airdrop.

 

How Do Crypto Airdrops Compare To Other Methods Of Distributing Money?

Crypto airdrops could be an excellent way to bolster your crypto portfolio without having to buy digital assets. In addition, they may be able to get you on the ground floor of a new platform. It is best to learn about them in a cryptocurrency course, and with the right cryptocurrency learn techniques, you will understand how airdrops are better. 

 

Airdropped assets, however, may also be worthless. There is the possibility that you could spend time seeking out and claiming airdrops, only to see the prices of the airdropped coins drop before you can sell them.

 

The risk of giving money or sensitive information to a fraudulent platform is even greater. A cryptocurrency expert and enthusiast are more likely to benefit from airdrops. As they like to stay up to date with new developments and actively manage their portfolio regularly.

 

What Is The Process Of Receiving Crypto Airdrops?

You can add crypto assets to your portfolio through crypto airdrops without buying any assets with fiat currency.

 

You can track down crypto airdrops by:

 

• Searching online regularly for airdrop opportunities in the crypto
• Joining airdrop aggregators and signing up for their exclusive airdrops
• Take advantage of any standard airdrops offered by new platforms by signing up for them
• Keeping an eye on up-and-coming projects to prepare for bounty airdrops
• The key to taking advantage of upcoming airdrops is staying on top of developments and seizing opportunities when they arise.

 

Airdrop Scams: How Do They Work? 

You need to protect yourself from airdrop scams if you want to pursue airdrops. A fake airdrop or fake key scam is when scammers attempt to get their hands on your money or private key under the guise of giving you a token airdrop. 

 

Never provide your private key to an untrusted party or connect your wallet to an untrusted website. Sometimes, scammers will even airdrop a fake token into your wallet, and you won’t discover the fraud until it’s too late to exchange it or sell it.

 

Take the time to study a project’s leadership. Read its public documentation, and gauge other investors’ sentiments before claiming an airdrop.

 

How Does A Crypto Airdrop Affect Taxes?

A platform that airdrops crypto into your wallet typically requires you to pay taxes on the proceeds. Normally, airdrops are taxable at their fair market value on the day they are received as ordinary income. 

 

You may also need to pay capital gains on any appreciation of your airdropped asset during your holding period if you decide to sell it.

 

What Is The Difference Between Airdrops And Hard Forks? 

Drops aimed at boosting adoption are the main purpose of airdrops. In that you can get new coins, hard forks are similar to airdrops, but they are fundamentally different.

 

As a result of a hard fork, a single blockchain has two separate, parallel chains. After the split, holders of coins on the original chain could also receive coins on the new unique chain.

 

Members of the blockchain community may disagree with the current functionality of the blockchain, resulting in a hard fork. It is possible for the chain to fork if not all miners agree with the new changes.

 

As a result, the validating software on the new chain rewrites. The old chain no longer recognizes the blocks created based on the new chain’s consensus rules. A new cryptocurrency may then be given to users in an equal amount.

 

Airdrops: Why Crypto Projects Do Them

Crypto projects are the biggest beneficiaries of such events. They give out generous bounties through airdrops. Find out why airdrops are crucial to the success of crypto startups.

 

• Sensitizing the public

Blockchain startups conduct airdrops primarily to raise awareness. When crowdfunding was in its infancy, ICOs dominated. Soon, however, problems arose. In this gold rush, startups appeared with only a flimsy and partially copied white paper in hand. It oversaturates the market and scares away investors.

 

In addition, countries like China have outright banned ICOs, and U.S. regulators like the SEC have begun targeting ICOs involving domestic U.S. investors. A legal and alluring method for creating hype for new projects was needed soon. The solution was simple. Distribute free coins. Crypto supporters went on a shilling spree to get airdrops and “pump their bags.” Airdrop recipients are some of the most vocal advocates a project can hope for. Anyone active in the crypto community on social media can probably agree that. It was a match made in heaven for crypto startups. It allowed them to expand organically by simply paying a small percentage of their tokens.

 

• Providing rewards to users

Investors in the crypto ecosystem are often only concerned about their return on investment (ROI). They do not care about a project’s long-term sustainability. Consequently, they hop from one project to another, dumping their heavy bags after a pump. They make huge profits from small-time investors while providing no actual value to the protocol. Such behavior can damage a cryptocurrency platform.

 

As a countermeasure, some startups provide free coins to reward loyal users. Why? For using their platforms or for continuing to hold certain amounts of tokens for a specified period of time. 

 

• Distributing tokens decentralized

During a coin’s early days, wealthy investors may take advantage of their disparate wealth. They secure a bargain price, allowing them to hoard a significant share of the coin’s circulating supply. One of Dogecoin’s main weaknesses is that large amounts of coins in a few hands create centralization.  Such projects can opt to conduct crypto airdrops to balance out the distribution of tokens.

 

Conclusion

As community incentives, airdrops serve as a harmless marketing gimmick to benefit new projects and their early supporters. Crypto beginners and enthusiasts looking to get into promising projects early can potentially make a fortune from these tokens. As that initially seems like small fry.