What Is a Crypto Airdrop?

Introduction

With the constant emergence of new tokens, cryptocurrency investors and traders find it challenging to keep up with all the developments in new projects. As a result, some cryptocurrency projects choose to use airdrops to attract attention and enhance awareness. While free cryptocurrency is always exciting, not all airdrops are reliable. Let’s explore how airdrops work and how to protect yourself from airdrop scams.

What is a Cryptocurrency Airdrop?

A cryptocurrency airdrop refers to the process of transferring digital assets from a cryptocurrency project to multiple wallets, aiming to send tokens to existing or potential users to increase project visibility. Although the tokens are free, some airdrops require users to complete specific tasks before claiming them. Cryptocurrency airdrops have gained popularity since the initial coin offering (ICO) boom in 2017 and continue to be a common marketing strategy for many crypto projects.

How Do Cryptocurrency Airdrops Work?

Cryptocurrency airdrops come in various forms, with a common approach being the distribution of small amounts of cryptocurrency to multiple wallets on networks like Ethereum or Binance Smart Chain. Some projects also choose to distribute NFTs instead of traditional cryptocurrencies.

Some projects distribute tokens without any conditions, while others require users to complete specific tasks before claiming them. These tasks often include following social media accounts, subscribing to newsletters, or holding a certain amount of specific tokens in their wallets. However, these requirements do not guarantee that you will receive the airdropped tokens.

In certain cases, airdrops may only be available to wallets that have interacted with the project platform before a specific date. 1INCH and Uniswap are early examples of this model, and the value of these airdrops can often be significant.

Why Do Cryptocurrency Projects Conduct Airdrops?

As mentioned, blockchain projects use airdrops to promote themselves and expand their network's influence. A large number of holders is often seen as a positive signal, indicating that token ownership is more decentralized. Airdrops can incentivize recipients to use and promote the project while also helping to cultivate an initial user base before the project is listed on trading platforms.

On the other hand, airdrops can sometimes create an illusion of growth. Therefore, it is essential to consider other factors when evaluating adoption rates. For example, if hundreds of thousands of addresses hold a particular token but no one is actively using it, that project may either be a scam or simply lack interest.

Are Cryptocurrency Airdrops the Same as Initial Coin Offerings (ICOs)?

Although both involve new cryptocurrency projects, cryptocurrency airdrops and initial coin offerings (ICOs) are entirely different concepts. Airdrops do not require participants to make any investment, whereas an ICO is a crowdfunding method.

During an ICO, project teams sell tokens to raise funds from investors. ICOs became popular in 2014 when Ethereum supported its development through a crowdfunding campaign. In 2017, the cryptocurrency market experienced an ICO boom, with hundreds of new projects launching in succession.

Types of Airdrops

As we have seen, there are various methods for cryptocurrency airdrops. In addition to the standard airdrop, which simply involves transferring cryptocurrency to multiple wallets, there are several other types. Common types of airdrops include bounty airdrops, exclusive airdrops, and holder airdrops.

Bounty Airdrops

Bounty airdrops require users to complete specific tasks, such as sharing relevant posts about the project on Twitter, joining the project's official Telegram group, or creating posts on Instagram and tagging friends. To receive a bounty airdrop, users must fill out a form that includes their wallet address and provide proof of task completion.

Exclusive Airdrops

Exclusive airdrops are limited to sending cryptocurrency to specific wallets. Typically, recipients are users who have interacted with the project, potentially being active community members or early supporters of the project.

For example, in September 2020, the decentralized exchange platform Uniswap airdropped 400 UNI tokens to all wallets that had interacted with the platform before a specific date. Users holding these governance tokens gained the right to vote on the project's future development directions.

Holder Airdrops

Holder airdrops refer to the free distribution of tokens to wallets that hold a specific amount of cryptocurrency. The project team takes a snapshot of users' cryptocurrency holdings at a designated date and time. If the wallet balance meets the minimum requirement, the recipient will receive tokens based on their holdings at the time of the snapshot.

Many new projects choose to airdrop tokens to holders of Bitcoin (BTC), Ethereum (ETH), or Binance Smart Chain (BSC) wallets, as these wallets have large communities behind them. For instance, Stellar Lumens (XLM) airdropped 3 billion XLM to Bitcoin holders in 2016, targeting solely users on the Bitcoin network.

How to Claim Airdrops

As previously mentioned, the process for claiming airdrops varies by project. However, a prerequisite for claiming an airdrop is having a cryptocurrency wallet. MetaMask is a popular and convenient cryptocurrency wallet. Once users have a wallet, they can check if they have received any free tokens. If not, they usually need to interact with the project’s website to be eligible for the airdrop.

How to Avoid Airdrop Scams

Determining the legitimacy of an airdrop can be quite challenging. Before registering for any airdrop, it’s crucial to conduct thorough research (DYOR). If a project asks you to link your wallet to its website, remain vigilant. Some fraudsters airdrop tokens to multiple wallets, and when recipients attempt to transfer these tokens to an exchange or another wallet, they discover that their wallets have been emptied.

Some scammers lure users to phishing websites under the guise of an airdrop. They create fake websites that closely resemble legitimate ones, and once users connect their wallets and sign transactions, the tokens in their wallets can be maliciously transferred away. This often occurs through impersonated Twitter and Telegram accounts.

Additionally, certain airdrop scams require individuals to send cryptocurrency to unknown wallet addresses in exchange for so-called "free tokens." Legitimate airdrops will never ask users for funds or recovery phrases, so maintain a high level of vigilance regarding airdrop emails or direct messages.

To avoid falling victim to scams, always check the project's official website and social media channels, bookmarking official links to confirm the authenticity of the airdrop activity. If you are not well-acquainted with the project, it is even more important to conduct additional research to understand the overall sentiment within the cryptocurrency community. If sufficient information cannot be found, it is best to ignore the airdrop.

For added security, users can set up a new wallet and email account specifically for receiving airdrops. This helps protect personal wallet funds from phishing attempts related to airdrops. Most importantly, never share your private key information with anyone.

Conclusion

Airdrops provide an excellent promotional opportunity for cryptocurrency projects and offer enthusiasts a way to enrich their portfolios with emerging tokens. However, the number of airdrop scams often exceeds that of legitimate airdrops. Therefore, exercise caution and ensure thorough research before participating.