Summary
Cryptocurrency airdrops are a marketing strategy used by cryptocurrency startups to promote projects and their new tokens. They mainly distribute the project's native cryptocurrency to existing or potential users for free. Some airdrops require users to complete simple promotional activities to receive them, such as following the project's social media accounts and sharing posts.
There are different types of airdrops, and each project has its own requirements. But most airdrops have the same goal, which is to increase public awareness and overall interest in the project. Some airdrops are directly deposited into the user's wallet, while others require the user to manually claim them.
Anyone with a cryptocurrency wallet can receive or claim airdrops, but beware of scams. There are many fraudulent airdrops that steal personal wallet funds when claiming or transferring free tokens. Before claiming an airdrop, be sure to confirm the legitimacy of the project. If the project requires you to link your personal wallet to the airdrop website, be extra careful.
Introduction
With new tokens appearing all the time, it’s hard for cryptocurrency investors and traders to keep track of all the new projects. As a result, some cryptocurrency projects use airdrops to help them stand out and increase awareness. While everyone loves free crypto, not all airdrops are legitimate. Let’s learn how airdrops work and how to protect yourself from airdrop scams.
What are cryptocurrency airdrops?
Cryptocurrency airdrops refer to the transfer of digital assets from a cryptocurrency project to multiple wallets. The idea is to distribute tokens to existing or potential users to increase project awareness. Tokens are distributed for free, but some airdrops require users to complete specific tasks before receiving them. Cryptocurrency airdrops became popular during the initial coin offering (ICO) boom in 2017 and are still a common marketing strategy used by many cryptocurrency projects.
How do cryptocurrency airdrops work?
There are many types of cryptocurrency airdrops, and the most common method is to distribute a small amount of cryptocurrency to multiple wallets such as Ethereum or Binance Smart Chain. However, there are also rare projects that use NFTs instead of regular cryptocurrencies for distribution.
Some projects give out tokens without any conditions, while others require users to complete certain tasks before claiming them. These tasks often involve asking you to follow a social media account, subscribe to a newsletter, or at least hold a certain number of tokens in your wallet. Of course, this does not guarantee that you will receive the airdropped tokens.
In some cases, airdrops are only given to wallets that have interacted with the project platform before a certain date. 1INCH and Uniswap are classic examples of early adopters of this model. But unlike regular airdrops, those airdrops are worth thousands of dollars.
Why do cryptocurrency projects conduct airdrops?
As mentioned earlier, blockchain projects promote themselves and expand their networks by giving away tokens for free. A large number of holders often sends a positive signal, meaning that the project's token ownership is more decentralized. Cryptocurrency airdrops can incentivize recipients to use and promote the project, cultivating an initial user base before the project is listed on cryptocurrency exchanges.
On the other hand, airdrops can give a false impression of growth. Therefore, other factors must be considered when evaluating adoption. For example, if hundreds of thousands of addresses hold a token but no one is actually using it, the project is either a scam or no one is interested.
Are Cryptocurrency Airdrops and Initial Coin Offerings (ICOs) the Same Thing?
While both involve new cryptocurrency projects, cryptocurrency airdrops and initial coin offerings (ICOs) are distinct concepts. Airdrops do not require any investment from participants, while ICOs are a form of crowdfunding.
During an ICO, a project team will sell tokens to raise funds from investors. ICOs have been popular since 2014, when Ethereum held a crowdfunding campaign to help it grow. In 2017, the cryptocurrency industry saw an ICO boom, with hundreds of new projects following suit. For a more detailed explanation of the concept, read our article What is an Initial Coin Offering (ICO)?
Airdrop Type
As we have seen, there are many different ways to airdrop cryptocurrencies. In addition to regular airdrops, which are simply transferring cryptocurrencies to multiple wallets, there are other types. Common examples include bounty airdrops, exclusive airdrops, and holder airdrops.
Bounty Airdrop
Bounty airdrops require users to complete certain tasks, such as sharing a post about the project on Twitter, joining the project's official Telegram, or creating a post on Instagram and tagging several friends. To claim the bounty airdrop, users need to fill out a form with wallet address information and provide proof of task completion.
Exclusive Airdrop
Exclusive airdrops are limited to sending cryptocurrency to designated wallets. Generally speaking, the recipients have had contact with the project before, are active community members, or are early supporters of the project.
In September 2020, decentralized exchange (DEX) Uniswap airdropped 400 UNI to all wallets that had interacted with the platform protocol before a certain date. Users holding governance tokens will have the right to vote on future decisions related to the development of the project.
Airdrop for holders
Holder airdrops distribute tokens for free to people who hold a certain amount of digital currency in their wallets. The project team usually takes a snapshot of the user's cryptocurrency holdings at a specific date and time. If the wallet balance reaches the minimum requirement, the recipient will receive free tokens based on the amount held at the time of the snapshot.
Many new projects airdrop tokens to Bitcoin (BTC), Ethereum (ETH) or Binance Smart Chain (BSC) wallet holders because they have the largest communities in the space. For example, Stellar Lumens (XLM) airdropped 3 billion XLM to Bitcoin holders in 2016, and this airdrop was exclusive to users of the Bitcoin network.
How to claim the airdrop?
As mentioned before, the process varies from project to project. But to claim the airdrop, you must have a cryptocurrency wallet. MetaMask is a popular cryptocurrency wallet that is easy to use. Once you have a wallet, you can check to see if you have received the free tokens in your wallet. If not, you must interact with the website to claim the airdrop.
How to prevent airdrop scams?
It is very challenging to determine whether an airdrop is legitimate or a scam. Before signing up for any airdrop, always do your own research (DYOR) and be extremely cautious if you are asked to link your wallet to a website. Scammers sometimes airdrop tokens to multiple wallets, and when the recipient tries to transfer these tokens to a cryptocurrency exchange or other wallet, they find that their wallet is empty.
Some scammers falsely claim that there is an airdrop and then lure people to phishing websites. The scammers trick people into connecting their wallets to a website that is very similar to the real website. Once the wallet is connected and the transaction is signed, the tokens in the wallet will be maliciously emptied. This usually happens with fake accounts that are similar to official Twitter and Telegram accounts.
Some airdrop scams ask individuals to send cryptocurrency to unknown wallet addresses in exchange for unlocking free tokens. Legitimate airdrops will never ask individuals to provide funds or seed phrases. Be cautious with airdrop emails or private messages.
To avoid being scammed, always check the project’s official website and social media channels. Bookmark the official link to verify whether the airdrop event is real. If you have no idea about the project, you should do additional research to understand what the cryptocurrency community thinks. If you can’t find enough information, it’s best to ignore the airdrop.
To be on the safe side, individuals can set up a new wallet and email address specifically for receiving airdrops. This will ensure the safety of personal wallet funds and prevent phishing attempts under the pretext of airdrops. Most importantly, never share private key information with others.
Summarize
Airdrops are what make cryptocurrency projects stand out and gain popularity in the field. For cryptocurrency enthusiasts, it is also the preferred way to enrich their personal portfolio of emerging tokens. However, there are more airdrop scams around us than legitimate airdrops. Therefore, please be cautious and do your own research before participating.