Crypto Guide: What is a Cryptocurrency Airdrop?
Cryptocurrency projects aren't just associated with technology and innovation that decentralize payments; they're also known for integrating their innovations into pioneering marketing strategies. A popular marketing strategy is a cryptocurrency airdrop, which enhances the visibility of emerging crypto projects, driving their engagement and growth.
In the crypto industry, some people would probably disagree with the popular quotation that "there's no such thing as a free lunch." Some passionate crypto enthusiasts and retail investors might point to airdrops as evidence that there are some things you can get for free. Cryptocurrency airdrops have been making headings on behalf of the industry in the last few years. They're becoming popular, and it's now a popular way for developers to launch a new crypto project. And for enthusiasts, community airdrops have become a lucrative project for some. For instance, many enthusiasts earn millions of dollars by betting on whether protocols offer token airdrops.
According to a report by Bitwise, a user has recently earned over $3 million in rewards after betting on the NFT meme project On Chain Shiba. Others simply sign up for airdrops hoping to get free coins, which they can sell at a higher price after a few days or weeks. But what are cryptocurrency airdrops? Are they totally free, or are there a few rules and conditions that every enthusiast should know? Let's explore how a crypto airdrop works and what to consider before signing up to receive tokens.
What is a cryptocurrency airdrop?
Airdrops are events where a crypto's development team deposits its tokens or NFTs into the wallets of participants. The main idea behind a crypto airdrop is to send newly minted tokens to hundreds or even thousands of different wallets to encourage users to engage in the project, even if most of the recipients will cash them out or swap them for other tokens. It's a creative marketing move similar to a free discount card that you'll find in your email or mailbox, encouraging you to visit a local store.
However, a cryptocurrency airdrop isn't just about making the recipient spend the money but rather raising awareness for new tokens. Traditionally, airdrops involve tokens with small values, like a fraction of a cent. One of the biggest airdrops in history happened in 2018 when the NEO blockchain announced that users holding its token would get 0.22 $ONT tokens. ONT is the token for the Ontology blockchain, and at the time of the airdrop, it was worth $2 each. At the time of the crypto airdrop, the total value of coins deposited into users' wallets reached over $40 million.
There are plenty of reasons why companies and developers rely on airdrops. One reason is that an airdrop promotes a blockchain startup, its token, or services. By distributing some of these tokens to users, the team can bootstrap its project, ensuring fair distribution of the tokens.
Cryptocurrency airdrops work both ways: they benefit the developer by helping raise awareness for the project, and they also incentivize users as soon as these tokens start trading. The more interest the team generates in the crypto project, the more likely it is to increase its market value.
According to Sidney Powell of Maple Finance, cryptocurrency airdrops effectively boost user engagement and product interaction in the crypto industry. Powell used the UNI (Uniswap native token) as an example, which used an airdrop of its token to reward early users in 2020. Now, the project is valued at roughly $15 billion. The anticipated dYdX token airdrop in 2021 spurred trading on the Uniswap DeFi exchange, rivaling major crypto exchanges. This surge of activity, according to Powell, underscored the importance of airdrops for companies and developers.
Also, cryptocurrency airdrops address a crucial hurdle in the early adoption of dApps: the challenge of expanding the user base and boosting liquidity. Developers also need to consider user onboarding prospects and ensure financial stability. Airdrops address these since they help draw new users, boost engagement, and offer liquidity.
Of course, a successful cryptocurrency airdrop is not the be-all and end-all requirement for developers. It's still important for devs and dApps to continuously engage users with better experiences.
Popular types of cryptocurrency airdrops
There are three main types of crypto airdrops that you can join today:
Standard/raffle airdrops
In this type of airdrop, you must sign up or complete a registration to qualify. It's the most popular way to join an airdrop, and many crypto enthusiasts think it's the only way to get free coins or even "free money." If there's too much demand compared to the supply of tokens, most dev teams will choose based on a raffle system or through random picks.
Bounty airdrops
To qualify for bounty airdrops, you must complete a set of tasks. For example, you can promote the crypto project or token on social media and get tokens as a reward. Also, you can join the project's growing community by signing up for a newsletter or referring others to sign up. In short, this type of crypto airdrop isn't completely free since you'll need to do some work before you can qualify.
Holder/exclusive airdrops
In some cases, dev teams often reward their loyal and hard-working community members by 'airdropping' newly minted tokens to wallets holding their cryptos. Holders of the tokens don't need to sign up or complete any task; as long as they have and support the project, they will receive these new coins. This is the closest thing we can think of regarding "free cryptocurrency." However, holders and beneficiaries of exclusive airdrops should first show their commitment to the project by buying and holding these coins through any volatility.
Are cryptocurrency airdrops worth it?
As mentioned, a crypto airdrop works both ways. These airdrops are an effective marketing tool for the development teams that promote the project and engage users. If it's a new project, a successful airdrop can help raise awareness and improve the liquidity of the tokens. For the recipients, including the retail traders, a legit cryptocurrency airdrop is one way to collect crypto and earn from it. Since cryptocurrencies are highly volatile, there's a chance that the tokens can be worth much more after a few weeks or months. And since some cryptocurrency airdrops only require a simple registration or completing a task, there's nothing to lose when joining this marketing scheme.
So, should you join the next crypto airdrop recently announced on social media? Not so fast.
The lure of free stuff can sometimes cloud our judgment. And there's always the potential to fall into popular scams online, like phishing. Remember, one requirement to qualify for free tokens is to sign up, which means giving up your name, address, email, and other information.
Now, no one can access your tokens or information by simply depositing these tokens into your wallet. You can be compromised if you decide to sell or swap your token after it has been listed in your balance. If you view the tokens on the block explorer or add it to an exchange, you may get an error message leading you to a questionable dApp or website via the block explorer.
The dubious site is where the phishing can take place. To complete the swap or sale, the scammers may claim that you must approve a transaction, approve access to your tokens, or even provide your Recovery Phrase.
Yes, it's exciting and potentially rewarding to join the next airdrop. But as always, we recommend practicing due diligence for all transactions involving cryptocurrencies, including the now-popular crypto airdrops.
