TL;DR

Cryptocurrency airdrop is a marketing strategy adopted by cryptocurrency startups to promote the project and its new token. It involves distributing your native cryptocurrency free of charge to current or potential users. Sometimes users need to complete promotional activities before redeeming tokens, such as following the project's social media account and sharing its posts.

There are different types of airdrops and each crypto project has its own requirements. But most airdrops share the same goal: increasing visibility and general interest in the project. Some are made directly to users' wallets, while others require manual redemption.

Anyone with a cryptocurrency wallet can receive or redeem an airdrop, but it's important to always be wary of scammers. There are many fraudulent airdrops that steal funds from your wallet when you redeem or transfer free tokens. Be sure to confirm the legitimacy of the project before redeeming an airdrop. You should be especially careful when it becomes necessary to connect your wallet to an airdrop site.

Introduction

With the ever-increasing number of new coins, it is difficult for cryptocurrency investors and traders to keep up with all the new projects. Therefore, some cryptocurrency projects offer airdrops as a way to promote themselves and increase their visibility and popularity. Everyone likes to receive free cryptocurrencies, but airdrops are not always legitimate. Let's see how they work and what you can do to protect yourself against scams.

What is a cryptocurrency airdrop?

A cryptocurrency airdrop refers to the transfer of digital assets from a crypto project to multiple wallets. The idea is to distribute coins or tokens to current or potential users and raise awareness about the project. These tokens are distributed free of charge, but some airdrops require users to perform certain tasks before completing token redemption. Cryptocurrency airdrops became popular during the 2017 initial coin offering (ICO) boom, but are still used as a marketing strategy by many crypto projects today.

How do cryptocurrency airdrops work?

There are different types of cryptocurrency airdrops, but they generally consist of a small amount of cryptocurrency being distributed to multiple wallets (usually on Ethereum or Binance Smart Chain). There are also projects that distribute NFTs instead of cryptocurrencies, although this is a less common practice.

Some projects distribute without asking for anything in return, while others request the completion of certain tasks. These tasks often include following social media accounts, subscribing to a newsletter, or keeping a minimum amount of coins in your wallet. However, there is not always a guarantee that you will receive the airdrop tokens.

In some cases, airdrops are only given to wallets that interacted with the project platform before a certain date. 1INCH and Uniswap are popular examples that used this method as a way to incentivize their early users. But unlike regular airdrops, these were worth thousands of dollars.

Why do crypto projects airdrop?

As mentioned, blockchain projects give away free tokens in an attempt to gain wider adoption and expand their network. A higher number of holders is often seen as a positive metric, which also makes the project more decentralized in terms of token ownership. Cryptocurrency airdrops also motivate recipients to use and promote the project. This helps cultivate an initial user base before the project is listed on cryptocurrency exchanges.

On the other hand, airdrops can also give a false impression of growth. Therefore, it is important to consider other factors when evaluating project adoption. For example, if thousands of addresses are storing a certain token, but no one is actually using those tokens, then the project is a scam or has simply failed to maintain community engagement.

Are cryptocurrency airdrops and ICOs the same thing?

Cryptocurrency airdrops and ICOs are different concepts, although they both involve new cryptocurrency projects. Airdrops do not require any investment from participating users. An ICO, on the other hand, is a method of crowdfunding (collective financing).

In an ICO, the project team holds a token sale to collect funds from investors. ICOs became popular in 2014 when Ethereum held a crowdfunding event to support their development. In 2017, the crypto sector saw a boom in ICOs, with hundreds of new projects adopting the method. Learn more about ICO in our article What is an ICO (Initial Coin Offering)?

Types of airdrop

As we have seen, there are different ways to carry out cryptocurrency airdrops. In addition to standard airdrops, which simply transfer cryptocurrencies to multiple wallets, there are a few other types. Common examples include the exclusive airdrop, holder airdrop, and rewards airdrop.

Rewards Airdrop

A rewards airdrop requires users to complete certain tasks, such as sharing a post about the project on Twitter, joining a group on the project's official Telegram, or creating a post and tagging friends on Instagram. To redeem a rewards airdrop, you'll likely need to fill out a form with your wallet address and provide proof that you've completed the required tasks.

Exclusive airdrop

An exclusive airdrop only sends cryptocurrencies to designated wallets. Typically, recipients have an established history with the project, such as active members of the community or early supporters of the project.

In September 2020, decentralized exchange (DEX) Uniswap airdropped 400 UNI to all wallets that interacted with its protocol before a certain date. The governance token offers holders the right to vote on decisions related to the project's future development.

Airdrop de holders

A holder airdrop distributes free tokens to users who keep a certain amount of a digital currency in their wallet. Generally, the project team collects data (snapshot) of users' crypto assets (holdings), at a specific date and time. If the wallet balance meets the minimum requirement, recipients can redeem free tokens according to their holdings at the time of the snapshot.

Many new projects distribute tokens to holders of Bitcoin (BTC), Ether (ETH) or the BSC wallet, as they represent the largest communities in the sector. For example, Stellar Lumens (XLM) airdropped 3 billion XLM tokens to BTC holders in 2016 and the airdrop was exclusive to Bitcoin network users.

How to redeem an airdrop?

As mentioned, the process varies depending on the project. The most important item you need to redeem an airdrop is a cryptocurrency wallet. MetaMask is a popular and easy-to-use cryptocurrency wallet. You can check if your wallet has received free tokens. If you haven't received any, you will probably need to interact with a project that offers airdrops to redeem them.

How to avoid airdrop scams?

It can be difficult to distinguish a legitimate airdrop from a fake or scam. Always do your own research (DYOR) before signing up for any airdrop, especially when you need to connect your wallet to a website. Generally, scammers airdrop tokens to multiple wallets and when the user tries to transfer these tokens to a cryptocurrency exchange or another wallet, all of their funds are stolen.

In other cases, scammers advertise a fake airdrop, which directs users to a phishing website. They trick the user into connecting their wallet to a fake website that looks very similar to the original. As soon as you connect your wallet and sign a transaction, all the tokens in your wallet are stolen. To do this, scammers often use fake Twitter and Telegram accounts that look very similar to the official ones.

Some airdrop scams ask you to send cryptocurrency to an unknown wallet address to unlock your free tokens. Legitimate airdrops will never ask for your funds or seed phrase. Be very careful with emails or private messages about supposed airdrops.

To avoid scams, check the project's official website and social media channels. Save the official links to your favorites and check if they are actually doing an airdrop event. If you don't know anything about the project, do detailed research and find out what the cryptocurrency community is saying about it. If you can't find enough information about a project, it's probably best to ignore the airdrop.

For extra protection, you can set up a new wallet and a new email address dedicated just to receiving airdrops. This can ensure that the funds in your personal wallet are safe from phishing attempts and airdrop-related scams. And most importantly, never share your private keys with anyone.

Final considerations

Cryptocurrency airdrops allow crypto projects to stand out and gain visibility in the sector. It is also a good way for crypto enthusiasts to grow their portfolio with promising new tokens. However, there are probably more fraudulent airdrops than legitimate ones. So be very careful and make sure you do your own research before attending one.