What Is a Crypto Airdrop: A Comprehensive Guide

Everyone likes freebies, even hardcore crypto investors. It’s a sweet feeling to get freebies, and it’s even better when said goodies are crypto tokens.

If you’re looking for the answer to the question, “what is a crypto airdrop”, you’re in the right place. 

Allow us to guide you through the concept, how you find find and participate in airdrops, and how to identify scams from afar off.

Read on!

What Is a Crypto Airdrop?

A crypto airdrop is when free tokens or coins are sent to wallet addresses to promote a new cryptocurrency. It’s a way for companies to gain attention, encourage trading, and reward loyal supporters. 

Crypto airdrops also help distribute tokens widely, which can enhance decentralization. To receive a crypto airdrop, you might need to hold a particular cryptocurrency or perform specific tasks like sharing posts on social media.

How Do Crypto Airdrops Work?

If you’ve ever participated in an online giveaway, you’ll have a fair idea of how crypto airdrops work. The point is to distribute free tokens or coins directly to the wallets of active users. 

For a crypto airdrop process, you may be required to hold a particular cryptocurrency, be active on a platform, or complete specific tasks (like joining a Telegram group or tweeting about the project).

Then, the project snapshots the blockchain at a specific block height, noting all wallet addresses holding the token. Only these addresses will be eligible for the airdrop. Once eligibility is confirmed, the new tokens are automatically distributed to the wallets of eligible users.

In some cases, active users might need to manually claim their airdropped tokens by interacting with a smart contract or performing other tasks stipulated by the project.

Diving Deeper into Crypto Airdrops

Here’s an overview of the different kinds of cryptocurrency airdrops:

Standard Airdrop

A standard airdrop is done to generate awareness and expand the user base of a crypto project. Here, you need to perform straightforward tasks like subscribing to a newsletter, following the project on social media, or registering on the project’s platform.

After you complete the required tasks, you can receive the airdropped tokens in your crypto wallet.  

Bounty Airdrop

To qualify for a bounty airdrop the tasks are more specific and often technical. For instance you may be required to create promotional content, find bugs in the software, or improve aspects of the project.

In return, you get tokens based on the quality or quantity of your contributions.

The idea of a bonty airdrop is to engage the community in contributing directly to the project’s development or promotional efforts.

Holder Airdrop

A holder airdrop rewards loyalty and encourage active users to hold onto their cryptocurrency.

A snapshot of a particular blockchain is taken at a predetermined time, and tokens are airdropped to the holders of existing currency based on their holdings.

Then, the new tokens are automaticaly distributed to the wallets associated with the snapshot data.

Hard Fork Airdrop

When hard forks, such as the one that led to the creation of BTH (Bitcoin Cash), occur, the existing chain splits into two. The result is that the new chain issues new tokens to holders of the original chain’s tokens.

Then the extra tokens from the new chain are proportionally distributed to holders of the old chain at the time of thefork.

Exclusive Airdrop

This is quite, quite similar to a holder airdrop, but this time, it’s to reward dedicated and early supporters of a project, often with higher-value or limited-edition tokens.

As you’d expect, the requirements for getting an exclusive airdrop are a bit stringent. For instance, you may have to be involved with the project for a long time or contribute significantly.

Raffle Airdrop

When you think of a raffle airdrop, you think of raffle tickets and what they generate—excitement. For this type of airdrop, participants enter the raffle by performing tasks or by registering. 

Each entry increases the chances of winning, similar to a lottery. At the end of the raffle period, the winners are chosen randomly, and hey presto,the tokens are distributed to their wallets as prizes.

Real-World Examples of Notable Crypto Airdrops

Here are some popular examples of real-world cryptocurrency airdrops. We’ll start with the one previously mentioned, Bitcoin Cash:

Bitcoin Cash

After the split, which resulted from disagreements in the Bitcoin community about handling scalability problems, Bitcoin Cash was created in August 2017.

All Bitcoin holders at the time of the fork received an equivalent amount of Bitcoin Cash. Automatically.

Bitcoin Cash aimed to offer faster transaction speeds and lower fees compared to Bitcoin. It quickly became one of the top cryptocurrencies by market capitalization.

Stellar (XLM)

In 2014, Stellar, focusing on enhancing cross-border payments, launched an ambitious airdrop program.

Stellar joined forces with Blockchain.com to distribute free XLM tokens to millions of Blockchain wallet users. The goal was to drive adoption and step up the liquidity of the Stellar network.

Uniswap (UNI)

Another popular example of a crypto airdrop is that of Uniswap when the platform airdropped 400 UNI tokens to every wallet that had ever interacted with the Uniswap protocol.

The event happened in September 2020, when Uniswap launched its governance token, UNI.

The Impact and Outcomes of Crypto Airdrops

Cryptocurrency airdrops are a big event in the blockchain ecosystem. They mean a lot to upcoming as well as established crypto projects.

However, they can be a two-edged sword, as they may have both positive and negative sides.

Pros

The advantages of cryptocurrency airdrops include:

• Low-Cost Marketing: By distributing free tokens, projects can attract media attention and word-of-mouth promotion. This method is particularly cost-effective, as it directly targets the cryptocurrency community, using the existing infrastructure (like crypto wallets and exchanges) to spread awareness.
• Fast Distribution and User Engagement: Airdrops can quickly spread out tokens to a large number of users, which is crucial for projects needing to distribute tokens widely to achieve decentralization. This way, passive observers can be converted into active participants.
• Establishing Loyalty and Expanding Userbase: For existing users receiving aditional tokens acts as a reward for their loyalty, encouraging them to continue using the platform and hold onto their tokens.

Cons

Cryptocurrency airdrops can also have unintended negative impacts, such as:

• Finite Token Supply: “Some airdrops offer a limited number of tokens, which may not meet demand, leaving participants unsatisfied.
• Uncertain Loyalty: Airdrop recipients might not remain committed to the project, leading to unstable community support.
• Potential for Decreased Token Value: Per the laws of demand and supply, such an oversaturation of tokens in the market can reduce their value, which has a negative impact on existing holders.

Crypto Airdrops and Safety Concerns

While airdrops are a great way to earn free tokens, they also come with serious risks. The biggest danger while looking hunting for airdrops online is falling afoul of phishing scams. Here, many crypto investors unwittingly log on to fraudulent websites, are are tricked to reveal sensitive details, such as private keys. 

Apart from this airdrop scamms can also occur when investors search for the sources of new crypto projects on blockchain explorers. Here, they may encounter false notifications with an address redirecting them to a third-party site. The notifications often impress the urgency to visit the site (usually a webpage set up for phising) to claim the crypto.

Another safety concern is rug pull scams, where developers might airdrop tokens that seem promising but are essentially part of a scheme to inflate perceived value before pulling out.

If the team behind an airdrop is anonymous or uses pseudonyms without verifiable identities, the risk of a rug pull increases.

Crypto Airdrops, ICOs, and Taxes

Crypto airdrops, ICOs (Initial Coin Offerings), and taxes intersect in complex ways. 

The first thing you should know is that crypto airdrops are taxable. Many countries also tax ICO earnings. You might need to report this as income the moment you receive tokens from an airdrop or buy during an ICO. 

Later, if you sell the tokens for a profit, there could be more taxes on the gains. As such it’s important to keep track of all dates and values of transactions as tax laws vary and can be detailed. 

Sometimes companies running ICOs might also conduct airdrops as a marketing strategy to increase awareness and attract more investors to the ICO. For instance, they might give a small number of tokens for free to people who show interest in the ICO, or to those who already hold certain other cryptocurrencies.

While ICOs and airdrops are usually separate, you can sometimes receive airdrop tokens as part of the ICO campaign.

Finding and Participating in Crypto Airdrops

Here are some tips to help you find and participate in a cryptocurrency airdrop:

Stay Informed

Don’t forget to follow crypto news from websites, blogs, and crypto news platforms that often announce upcoming airdrops.

You can also join crypto communities on Telegram, Twitter, Reddit, and Discord. They’re a must have!

Prepare Your Wallet

The next step, is to ensure you have a compatible cryptocurrency wallet. Some airdrops might require specific wallets.

Note that some airdrops require you to hold a minimum amount of a particular cryptocurrency to qualify, so check the correct requirements to make sure you’re on track.

Register for Airdrops

Sometimes, you’ll need to sign up on the project’s website, give out your wallet address and possibly other contact information.

Some airdrops may require you to join their social media, share posts, or tag friends to qualify.

Practise Safety Measures

Scams are everywhere! Any airdrop that requires you to share your private keys or send money to participate is false! So, take time to research the project, and look into the project’s team, goals, and community feedback before participating.

Historical Insights: The First Ever Crypto Airdrop

In March 2014, Auroracoin was launched as the “cryptocurrency for Iceland.” It made history as the first crypto airdrop by giving away 50% of all Auroracoins to people in Iceland.

Icelandic citizens who shared their ID got 31.8 AUR each on March 25th. The token was meant to replace traditional money in Iceland and help Icelanders avoid government money problems like inflation.

However, things didn’t work out well, sadly. The value of Auroracoin dropped more than 50% in just a few days and kept falling over the next few months. In just six months it lost all its value, making the project a failure. 

Country-Specific Airdrops: The Case of El Salvador

In June 2021, the president of El Salvador announced a crypto airdrop worth $30 million for all adult citizens. For this, the governemnt had to purchase over $100 million worth of Bitcoin to manage the airdrop. 

This was part of a broader move by the government to promote the adoption of Bitcoin in the country, to level up the flagging economy. 

Today, the nation now holds about $400 million worth of bitcoin!! Other moves have also been made to promote crypto in the country, such as eliminating income tax on tokens and granting citizenship to Bitcoin investors who make a donation to the government. An awesome incentive, if there ever was any!

The Role of NFT Airdrops

NFT airdrops are a way for digital projects to give out free NFTs to promote their work, reward loyal users, and get more people involved. 

By giving out NFTs projects can spread ownership more widely and encourage people to engage more with their platform. This can lead to more use of the platform and help establish the value of the NFTs in the market. 

Wrapping Up

Crypto airdrops serve as a sweet tool in the cryptocurrency ecosystem, enabling projects to enhance visibility, distribute tokens widely, and boost community engagement. 

They’re a way for new users to get involved in crypto without initial investment, while rewarding existing supporters. 

However you should always be careful when chasing airdrops, staying vigilant about potential scams and thoroughly researching each project.