Abstract
Cryptocurrency airdrops are a marketing strategy used by cryptocurrency startups to promote their projects and new tokens, primarily by distributing the native cryptocurrency of the project for free to existing or potential users. Some airdrops require users to complete simple promotional activities to claim, such as following the project's social media accounts and sharing posts.
Airdrop types vary, and each project has its own requirements. However, most airdrops share a common goal: to enhance public awareness and overall interest in the project. Some are deposited directly into users' wallets, while others require users to manually claim them.
All users with cryptocurrency wallets can receive or claim airdrops, but must always be vigilant against scams. When claiming or transferring free tokens, many fraudulent airdrops will steal personal wallet funds. Before claiming an airdrop, be sure to confirm the legitimacy of the project. If a project requires linking a personal wallet to an airdrop site, extra caution is necessary.
Introduction
With new tokens emerging constantly, it is difficult for cryptocurrency investors and traders to keep track of all new projects. Therefore, some cryptocurrency projects utilize airdrops to stand out and enhance awareness. While everyone loves free cryptocurrency, not all airdrops are legitimate. Let's explore how airdrops work and how to protect ourselves from airdrop scams.
What is a cryptocurrency airdrop?
A cryptocurrency airdrop refers to the distribution of digital assets from cryptocurrency projects to multiple wallets, with the idea of distributing tokens to existing or potential users to enhance project awareness. Tokens are distributed for free, but some airdrops require users to complete specific tasks before claiming. Cryptocurrency airdrops became popular during the initial coin offering (ICO) boom in 2017 and remain a common marketing strategy for many cryptocurrency projects.
How do cryptocurrency airdrops work?
Cryptocurrency airdrops come in various forms, with the most common method being the distribution of small amounts of cryptocurrency to multiple wallets on Ethereum or Binance Smart Chain. However, some rare projects use NFTs instead of conventional cryptocurrencies for distribution.
Some projects have no conditions attached to token distributions, while others require users to complete specific tasks before claiming. These tasks typically include following social media accounts, subscribing to newsletters, or holding a specific amount of tokens in the wallet. Of course, this does not guarantee that you will receive the airdrop tokens.
In some cases, airdrops are only provided to wallets that interacted with the project platform before a specific date. 1INCH and Uniswap are classic examples of early adopters of this model. However, unlike regular airdrops, those airdrops can be worth thousands of dollars.
Why do cryptocurrency projects conduct airdrops?
As mentioned, blockchain projects promote themselves by distributing tokens for free and expanding network development. A large number of holders often signals positivity, indicating a higher degree of decentralization in token ownership. Cryptocurrency airdrops can incentivize recipients to use and promote the project, helping to cultivate an initial user base before the project launches on cryptocurrency trading platforms.
On the other hand, airdrops can create an illusion of growth. Therefore, when evaluating adoption rates, other factors must be considered. For instance, if hundreds of thousands of addresses hold a certain token but no one is actually using it, the project is either a scam or simply ignored.
Are cryptocurrency airdrops the same as initial coin offerings (ICOs)?
While both involve new cryptocurrency projects, cryptocurrency airdrops and initial coin offerings (ICOs) are entirely different concepts. Airdrops do not require any investment from participants, whereas initial coin offerings (ICOs) are a form of crowdfunding.
During initial coin offerings (ICOs), project teams conduct token sales to raise funds from investors. Initial coin offerings (ICOs) became popular in 2014 when Ethereum held a crowdfunding event to aid its development. In 2017, the cryptocurrency space witnessed a boom in initial coin offerings (ICOs), with hundreds of new projects following suit. For more details on related concepts, please read our (What is an Initial Coin Offering (ICO)?)
Airdrop Types
As we have seen, the methods of cryptocurrency airdrops are diverse. In addition to regular airdrops, which simply transfer cryptocurrencies to multiple wallets, there are other types as well. Common examples include bounty airdrops, exclusive airdrops, and holder airdrops.
Bounty airdrop
Bounty airdrops require users to complete certain tasks, such as sharing relevant posts about the project on Twitter, joining the project's official Telegram, or creating posts on Instagram and tagging several friends. To claim the bounty airdrop, users must fill out a form containing wallet address information and provide proof of completing the tasks.
Exclusive airdrop
Exclusive airdrops are limited to sending cryptocurrency to designated wallets. Generally, the recipients have previously interacted with the project, either as active community members or early supporters of the project.
In September 2020, the decentralized exchange (DEX) Uniswap airdropped 400 UNI to all wallets that interacted with the platform's protocol before a specific date. Users holding governance tokens will have the right to vote on future decisions related to the project's development.
Holder airdrop
Holder airdrops distribute tokens for free to individuals holding a certain amount of cryptocurrency in their wallets. The project team usually takes a snapshot of users' cryptocurrency holdings at a specific date and time. If the wallet balance meets the minimum requirement, the recipients will receive tokens for free based on their holdings 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; this airdrop was exclusive to users on the Bitcoin network.
How to claim an airdrop?
As mentioned, the process varies by project. However, to claim an airdrop, one must have a cryptocurrency wallet. MetaMask is a popular cryptocurrency wallet that is easy to use. Once you have a wallet, you can check whether you have received free tokens. If you haven’t received any, you must interact with the website in order to claim the airdrop.
How to prevent airdrop scams?
Determining whether an airdrop is legitimate or a scam is highly challenging. Before registering for any airdrop, be sure to do your own research (DYOR), and if the other party requests linking a wallet to a website, proceed with caution. Scammers sometimes airdrop tokens to multiple wallets, and when the recipient tries to transfer these tokens to a cryptocurrency trading platform or another wallet, they find their wallet completely empty.
Some scammers falsely claim to have an airdrop and then lure others to phishing sites. Scammers trick others into linking their wallets to websites that closely resemble the real site. Once the wallet is linked and a transaction is signed, the tokens in the wallet will be maliciously emptied. This typically occurs with fake accounts that are similar to official Twitter and Telegram accounts.
Some airdrop scams require individuals to send cryptocurrency to unknown wallet addresses to unlock free tokens in return. Legitimate airdrops will never ask individuals for funds or mnemonic phrases. Always exercise caution with airdrop emails or private messages.
To avoid being scammed, be sure to check the project's official website and social media channels. Bookmark the official links and verify whether the airdrop activity actually exists. If you have no idea about the project, additional investigation is warranted to understand the cryptocurrency community's views. If you cannot find enough information, it's best to ignore the airdrop altogether.
To be completely safe, 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 disguised as airdrops. Most importantly, never share your private key information with others.
Summary
Airdrops allow cryptocurrency projects to stand out and resonate within the field. For cryptocurrency enthusiasts, this is also a preferred way to enrich personal emerging token portfolios. However, there are more airdrop scams around us than legitimate airdrops. Therefore, please be careful and always do your own research before participating.