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Cryptocurrency airdrop is a marketing strategy for promoting crypto projects and new tokens of certain cryptocurrency startups. It consists of free distribution of native cryptocurrency to current or potential users. To receive a prize, sometimes users need to perform simple actions, for example, subscribe to the project’s account on a social network and repost its publications.
There are different types of airdrops, and each crypto project has its own requirements. However, most airdrops have the same goal: to spread information about the project and increase interest in it. Some are executed directly in users' wallets, while others must be obtained manually.
Any user with a cryptocurrency wallet can receive an airdrop, but beware of attackers. There are many fraudulent airdrops that can steal your wallet funds when requesting or transferring free tokens. Before applying for an airdrop, be sure to check the reliability of the selected project. Be especially careful if it requires you to connect your wallet to the airdrop site.
Introduction
The number of new coins is constantly growing, making it difficult for crypto investors and traders to keep track of emerging projects. In this regard, some cryptocurrency projects conduct airdrops in order to stand out from the rest and spread the word about themselves. And while everyone loves free cryptocurrency, not all airdrops are safe. Let's look at how they work and what you can do to protect yourself from fraudulent airdrops.
What is a cryptocurrency airdrop?
A cryptocurrency airdrop is the transfer of digital assets of a crypto project to several wallets. This way, developers can distribute coins and tokens among current or potential users and advertise the project. As part of airdrops, tokens are issued for free, but in some cases you must complete certain tasks to receive a prize. Cryptocurrency airdrops became popular during the initial coin offering (ICO) boom in 2017 and continue to be used today as a means of promotion.
How Cryptocurrency Airdrops Work
There are several types of cryptocurrency airdrops, but they typically involve distributing a small amount of cryptocurrency across multiple wallets (usually Ethereum or Binance Smart Chain). Some projects give away NFTs instead of regular cryptocurrency, although this is less common.
Sometimes projects distribute cryptocurrency for free, and sometimes they ask you to complete certain tasks: subscribe to an account on a social network, subscribe to a newsletter, store a certain number of coins in your wallet, and so on. Fulfilling the conditions does not always guarantee receipt of tokens.
In some cases, a prize is given only to those wallets that interacted with the project platform before a certain date. This method was used by 1INCH and Uniswap to support early users, but unlike other common airdrops, their prizes were worth thousands of dollars.
Why do crypto projects conduct airdrops?
Blockchain projects are giving away free tokens in an attempt to expand their reach and increase the number of users. The more holders, the more reliable the token looks and the more decentralized the project is. Airdrops also motivate recipients to use and promote the project, which can increase the initial user base before listing on a crypto exchange.
It is worth considering that airdrops can create the illusion of growth, so there are other factors to consider before receiving a token. For example, if hundreds of thousands of addresses own it, but virtually no one uses it, the project is either fraudulent or failed to interest the community.
Are cryptocurrency airdrops and ICOs the same thing?
Cryptocurrency airdrops and ICOs are different concepts, although both involve new cryptocurrency projects. The difference between them is that airdrops do not require any investment from participants, and ICOs are a method of crowdfunding.
During the ICO, the project team sells tokens to raise funds from investors. ICOs began to gain popularity in 2014 when Ethereum held a crowdfunding event to support its development. In 2017, there was a boom in ICOs in the crypto space, with hundreds of new projects using them. Find out more about this method in the article What is an ICO (Initial Coin Offering).
Types of airdrops
There are many ways to conduct an airdrop. Apart from the standard process where the cryptocurrency is simply transferred to several wallets, there are others such as reward airdrop, exclusive airdrop and owner airdrop.
Airdrop with reward
In rewarded airdrops, users must complete certain tasks, such as reposting a project post on Twitter, subscribing to the official Telegram, or writing a post on Instagram and tagging several friends. To receive a reward, you usually need to fill out a form with your wallet address and proof of completion of the task.
Exclusive airdrop
In an exclusive airdrop, cryptocurrency is transferred only to certain wallets. As a rule, to receive a prize, you need to be an active member of the community or one of the first supporters of the project.
In September 2020, decentralized exchange (DEX) Uniswap gave away 400 UNI to every wallet that interacted with its protocol before a certain date. The resulting governance token gives owners the right to vote on decisions regarding the development of the project.
Airdrop for owners
In the owner airdrop, free tokens are awarded to users who hold a certain amount of currency. To conduct such draws, the project team usually takes a snapshot of users’ crypto assets at a specific date and time. If the wallet balance meets the minimum requirements, the user can claim free tokens according to their amount of assets at the time of the snapshot.
Many new projects are giving away tokens to Bitcoin (BTC), Ether (ETH) or BSC holders as they have the largest communities in the crypto space. For example, in 2016, the Stellar Lumens (XLM) project gave away 3 billion XLM to BTC holders, and the giveaway was exclusive to users on the Bitcoin network.
How to participate in the airdrop
The process may vary depending on the specific project, but a cryptocurrency wallet is always required to receive a prize. For example, you can use the popular and convenient MetaMask wallet. After setting up your wallet, make sure it accepts free tokens. If not, you will most likely need to interact with the site to receive the airdrop.
How to avoid scam airdrops
Distinguishing a reliable airdrop from a scam one can be difficult. Always do your own research before entering any giveaway, especially if it requires you to connect your wallet to the site. Sometimes attackers transfer tokens to multiple wallets and empty them when recipients try to transfer funds to a cryptocurrency exchange or another wallet.
In some cases, scammers conduct an airdrop on a phishing site that looks official and convinces you to connect your wallet. Once you do this and sign the transaction, other tokens will be taken from your wallet. This method is often used by fake accounts on Twitter and Telegram, which are very similar to the official ones.
Sometimes attackers ask to transfer cryptocurrency to an unknown wallet address in order to unlock free tokens. Secure airdrops never ask for funds or a seed phrase. Be careful with emails and personal messages.
To avoid fraud, study the official website and social networks of the project. Bookmark the official links and make sure that these channels are actually giving away assets. If you don't know anything about the project, find out what the crypto community thinks. If you can't find enough information, it's probably best to just ignore this airdrop.
For added security, you can set up a new wallet and email address dedicated only to receiving airdrops. This way you will protect the funds in your personal wallet from possible phishing. And most importantly, never share your private keys.
Summary
Cryptocurrency airdrops allow crypto projects to stand out and recruit participants in the crypto space. They can be a good way to grow your portfolio with new tokens, however there are likely to be more scam airdrops than safe ones, so be careful and always do your own research before participating.
