Cryptocurrency airdrops are one of the popular methods to distribute new tokens to individuals to promote a certain cryptocurrency to the crypto community in hopes of increasing the following and userbase of the cryptocurrency. The distribution of the crypto is usually free of charge and is targeted toward a large number of wallet addresses.
The concept of airdrops in the cryptocurrency isn’t entirely new. It traces its roots back to the early days of Bitcoin and the various hard forks that occurred within the Blockchain. Yet, the evolution and adoption of airdrops have significantly expanded, diversifying into different forms and strategies.
Airdrops are of multiple types that include tokens, forks, and bounties. Each type has its unique mechanism, and each type serves a different purpose, which we will discuss later. The method, if employed properly, gives the Blockchain a very good chance of distributing its tokens among the crypto community and can increase its follower count by a significant margin.
However, there are certain challenges associated with airdrops, not to mention the potential scam and fraud allegations that have been constantly associated with shady-looking crypto projects that use this method to exploit crypto holders. We will also explore how scammers use this strategy to trap people and what you should do to identify and avoid such projects.
How Cryptocurrency Airdrops Work
We will look at what are the steps involved in airdrops that will help you to understand the mechanism behind this crypto distribution process.
Conceptual Framework:
The main idea behind the concept of airdrop is to garner a relationship with the crypto community by distributing free tokens in exchange for minimal tasks. The process of airdrop is different from Initial Coin Offerings, which will be explored later in the article. Apart from increasing token ownership, airdrops also serve the purpose of increasing community engagement.
Types of Airdrops:
There are several different types of airdrop techniques, each varying from the other in terms of how the token is distributed and each serving a different purpose.
Standard Airdrop
The Standard airdrop process usually involves participants expressing their interest in receiving the crypto airdrop when the Blockchain announces it. To be selected for receiving the airdrop, all the participants have to do is provide their wallet address.
The number of tokens that are to be distributed is normally predecided, which means there is a limit set to how many tickets will be distributed among the interested participants.
Also, standard airdrops are time-sensitive, which means that beyond a certain elapsed time, the activity of airdropping tokens will be halted, and you may miss the chance to be part of the blockchain community if you don’t react in time and express your interest to receive free tokens.
If the fundamentals of the project are very strong, then you would have missed a great opportunity to be a part of it, so be on the lookout for such announcements. While standard airdrops are pretty common and do not involve any technical processes, they are lamented for being exploited by those who create multiple wallet addresses to receive the larger share of the airdrop tokens, which means they took the opportunity away from other interested participants to receive the free tokens.
Fork Airdrops
A fork in a blockchain results in the creation of a new chain and, subsequently, new tokens. These are distributed among existing token holders at the time of the fork, granting them a share of the new tokens proportional to their holdings in the original chain.
The interesting downside to this process is that some people might not want to become the recipient of the new tokens. Also, those who are holding a larger number of the existing tokens will get the majority amount of the new airdropped tokens.
Bounty Airdrops
Bounty airdrops involve the process of users performing certain tasks before they are eligible to receive the airdropped tokens. These tasks normally include raising awareness of the project among other members of the crypto community by promoting the Blockchain on different social media platforms and tagging it to verify their involvement in the promotion process. Participants can also retweet their posts on X(formerly Twitter). The other popular approach is to gain a finder’s fee by attracting new individuals to the project, as the company will reward you for your efforts in bringing new users to the company’s project. You can also join their discord channel to get a chance to receive new tokens.
In exchange for performing these tasks, the users will be awarded points depending on how much their promotion effort has increased the company’s profile. The more they can raise the shape of the company, the higher the amount of airdropped tokens they will receive. Similarly, there might be a limit on the minimum points the users may need to achieve in order to qualify for the airdrop.
Exclusive Airdrop
As the name suggests, exclusive airdrops are usually dedicated to a specific group of people who are individually selected for the airdrop, not on the amount of the tokens they hold but based on their dedication to the project.
By this, we mean that the company looks at the specific person’s time spent on the project, the amount of money he has spent on non-token related activities, or the number of posts he has made on the community’s forum.
This type of airdrop is done to reward those users who are actively participating in the community’s forums or working to raise the profile of the company by dedicating their time. An exclusive airdrop can even reward those persons who may not hold any tokens at all in their wallets.
Raffle Airdrop
In certain instances, various types of airdrops can be done on a system that replicates the concept of a raffle.
In such cases, a project might specify the total number of airdrops they plan to distribute and prompt individuals to participate in a raffle system to increase their chances of receiving the airdrop.
To qualify for this raffle, participants could be required to hold specific tokens, accumulate points through certain activities, or simply show interest in the airdrop.
Typically, the level of interest from individuals in the airdrop surpasses the number of airdrops that the company intends to give away. Consequently, a raffle system is employed, randomly selecting a limited number of wallets or participants to receive the airdrop. This method introduces an element of chance, ensuring that the distribution process is fair and that the recipients are chosen at random from the pool of eligible participants.
Receiving Airdropped Tokens:
Receiving airdropped tokens typically involves owning a compatible wallet or account for the respective Blockchain. Projects communicate the criteria and process for airdrop participation, requiring individuals to meet specific conditions, such as maintaining a minimum balance or performing certain tasks.
Participation in airdrops often demands vigilance and adherence to guidelines set by the issuing projects. It’s crucial to verify the authenticity of airdrop announcements and ensure the security of personal information and digital assets when engaging in these activities.
Purpose and Benefits of Airdrops
Cryptocurrency airdrops serve multiple purposes. The objective here is to understand what motivates the company to launch a campaign where they airdrop their tokens to the community and why the crypto community wants to engage in such activity.
Objectives of Airdrops:
Community Building and Engagement:
The primary goal of airdrops is to cultivate a relationship with the community that is part of the Blockchain or the project that is planning this initiative. By distributing tokens to the wider audience, the project is fulfilling its aim to increase its following, foster a relationship with the users who can be a part of their ecosystem, and help promote the project’s vision to other potential participants.
Token Distribution and Adoption:
Let’s face it: what is the point of creating crypto tokens when there is no one there to use them?
There are thousands of competing cryptocurrency projects; each has its vision, and each has its own set of goals it wants to achieve, not to mention the specific set of use cases they are designed to serve.
Now, if no one is there to advance their cause by participating in acquiring those tokens, the project is a failure. This is where airdropping tokens serve the purpose of gaining a following of a diverse set of users.
This broad ownership contributes to increased token liquidity and facilitates wider adoption of the project’s offerings.
Promotional Campaigns and Awareness:
If the project is not gaining much exposure to the wider audience, then airdropping tokens works very well as a promotional campaign to generate a buzz and attract more audience to the project.
Benefits for Projects and Recipients:
User Acquisition and Retention:
The main reason why any blockchain project launches an airdrop campaign is to attract a new user base. The users who are on the receiving end of the airdrop, in turn, can engage with the project because of the incentive they are given. They can also broadcast the project’s message to other audiences, which in turn will help in attracting more users to the project.
Marketing and Exposure:
If done properly, airdrop can prove to be a very cost-effective method for promoting the company’s message to a wider audience to gain exposure to their project.
For recipients of airdropped tokens:
Potential Value Appreciation:
Let’s say you were the participant of an airdrop campaign where you received a good amount of crypto tokens for free. Now, if the project succeeds and the values of the tokens appreciate over time, then you will reap some major rewards in terms of getting a substantial return.
Airdrop presents a very good opportunity for recipients to benefit from the growth of the project, provided the project has good fundamentals and isn’t a scam.
The strategic implementation of airdrops provides a win-win scenario for both projects and their communities.
Risks and Challenges in Airdrops
While cryptocurrency airdrops present compelling advantages, they also come with inherent risks and challenges that both projects and participants should consider. Understanding these drawbacks is crucial for navigating the airdrop landscape responsibly and effectively.
Potential Risks Associated with Airdrops:
Scam and Fraudulent Activities:
The most common negative aspect associated with airdrop is scammers and attackers exploiting this method to gain access to your wallet addresses and siphon of your tokens by acquiring your private keys through phishing attacks or social engineering.
Nothing compromises your personal information more than having it willingly given to scammers who might exploit such information at any time. Many users have fallen victim to such schemes where scammers announce the introduction of new crypto just to see that it was all for nothing.
Therefore, you must be very careful and conduct thorough research on the validity of the project before you raise your hands to become a beneficiary of their airdrop campaign.
Security Concerns:
Participating in an airdrop campaign involves sharing your data and your wallet addresses. The major point of worry here is that if your identity gets leaked by an unfortunate circumstance or if the entity involved in the airdrop campaign uses it for identity theft because they have malicious ulterior motives, then you can become a victim of identity theft.
Let’s say they do not have any ulterior motives. Still, some security lapse or lack of vigilance on their part has resulted in your details being exposed to public eyes, and from there, someone might use it for their purposes, and then you still will become a victim of identity theft.
Regulatory and Compliance Risks:
In places or regions where there are strict protocols defined for cryptocurrency, airdrops might also face the prying eyes of the regulators to see if they are complying with the regulations prescribed for them or whether or not they are even allowed in that jurisdiction.
There is another aspect regarding airdrop campaigns that you should also consider is whether or not they are taxable, meaning if you have acquired a certain amount of tokens and have made some sort of financial gains, then you might be liable to pay taxes on them.
Airdrop campaigns must make sure that they are legally complying with all the regulations set forth by regulators before they launch such a campaign. Beneficiaries of airdrop must also be clear about whether this activity is allowed in their region. If it is, then they should look at the rules defined for participating in it and pay taxes on the gains made if their government has set forth regulations for it.
Challenges in Airdrop Participation:
Verification and Authenticity:
Not everyone in the crypto space is an expert in the overall crypto environment. Some people may not have the time, resources, or expertise to familiarize themselves with all the dos and don’ts of the crypto environment.
Similarly, suppose they cannot figure out whether the airdrop campaign by a certain blockchain is a legitimate project, and they cannot verify its authenticity. In that case, they may be at a disadvantage because they may fall victim to fraudulent activities.
They may even face some legal consequences for aiding in such scam activities even if they didn’t know anything about that particular motive but were willingly participating in the airdrop campaign.
Technical Requirements and Complexity:
Another aspect of the airdrop campaigns where novice crypto holders might experience difficulty is the technical expertise required to participate in such events.
By technical expertise, we mean managing compatible wallets for the campaign or understanding the blockchain protocols, which isn’t an easy feat by any stretch of the imagination.
So, while they may be hopeful of becoming a recipient in an airdrop campaign, they may simply fail to achieve their goal just because they couldn’t establish a proper setup required to become the beneficiary of the campaign or are beaten to it by expert crypto traders and investors.
Token Value and Utility:
While you might feel excited or even lucky to be the recipient of airdropped tokens, if you don’t find any utility for it, then your excitement may convert into exasperation, and you will feel less inclined to participate in such projects in the future.
We do not see that they won’t have utility forever. Still, sometimes, these projects don’t have any immediate value or utility and require some time before both these objectives are reached.
This means that you would have to exercise patience before you see some reward for waiting, and this isn’t a virtue everyone can hold for long.
Projects need to offer a clear value proposition to ensure the tokens are perceived as worthwhile assets.
Before you participate in any airdrop campaigns, you need to familiarize yourself with such risks and ask questions that answer your query about whether participating in such an event is worth your time and effort.
Conclusion
So, if you have learned about any airdrop campaign, make sure the announcement is through their official channels. Verify the source so that you don’t get involved in any scam activities. Know whether or not you even want to be a recipient of airdropped tokens. If yes, then learn about the protocols of the Blockchain and its use cases so that you don’t waste your time if the campaign doesn’t fulfil your purpose. Do your due diligence and familiarize yourself with the risks and rewards of airdrop campaigns.
