What is a crypto airdrop, and how does it work?

crypto airdrop

Key Takeaways

  • Crypto airdrop is the distribution of free tokens to promote a crypto project.
  • Users are often required to complete some social tasks to claim the crypto airdrop.
  • Long-term members or HODLers are also eligible for airdrops.

It turns out that “airdrop” has a different meaning in the crypto world. A crypto-airdrop is the free distribution of tokens by a startup to its current and potential users to promote a project. In other words, it’s marketing at its finest using digital assets to speed up the adoption of digital assets.

As in the real world, crypto communities entice enthusiasts by invoking the FOMO factor to popularize their wares. Works pretty much the same way you received a freebie for that online shopping spree and how you went about recommending it to your friends. Yet, there are no free lunches, after all. Airdrops too, come with specific terms and conditions for those who wish to lap up the goodies.

Understanding how crypto airdrops work

We have seen that crypto airdrops seek to raise awareness about a crypto project in the market. That said, the primary focus here is not to get the community members to spend money on their token, but to highlight the services the project offers. Yet, most crypto airdrops require users to fulfill certain tasks such as:

  • To sign up on the crypto project’s platform or one of their services like a newsletter.
  • To follow the crypto project’s social media accounts.
  • To promote them by sharing or retweeting their posts with relevant hashtags.
  • To use a specific platform (usually a partner firm) to make transactions. This is also used for cross-chain bridge activities, i.e., use a blockchain bridge a certain number of times to become eligible for claiming the airdrop.
  • To own a certain amount of assets in your crypto wallet, so that the project can automatically distribute the airdrop.
  • To take a pre-dated wallet snapshot to claim the airdrop tokens from the project’s website through a smart contract.

However, not all projects insist on these conditions to claim the airdrop. The process can vary across crypto projects, but it is necessary to have a crypto wallet to become eligible. For instance, you can sign up with MetaMask, a crypto wallet.

Why do crypto projects perform airdrops?

Crypto airdrops operate around volume marketing. Basically, if a new crypto project distributes free tokens, the number of token holders will increase substantially. The distribution aims to attain wider adoption and grow their network since more token holders also make a crypto project more decentralized with diverse token ownership.

Furthermore, crypto airdrops generate intense FOMO, probably the best promotional strategy used in the digital assets industry. Imagine you have a group of friends who are all members of a sneakers’ club. Now, a new pair of Jordans is launched, and the club membership entitles them to get them for free, which they would flaunt gladly. The hapless you would be consumed by FOMO, compelling you to acquire a fresh pair for yourself.

Likewise, crypto airdrops motivate the recipients to not only use but also promote the project. The incentive helps to build an initial user base even before the project lists on a crypto exchange. However, crypto airdrops are not the best indicators to track the growth of a project. This is because every metric is pre-planned and can very well be fabricated. That is why at CoinSwitch, we always encourage you to DYOR.

Different types of crypto airdrops

Now that we understand how and why crypto airdrops happen and the process of claiming them, let’s consider different types of crypto airdrops. First and foremost is the standard airdrop, which distributes the tokens to various wallets. However, there are three commonly used crypto airdrops that are currently gaining traction in the industry:

  • Holder airdrop: In this mode, all you have to do is hold a stipulated amount of a particular asset in your wallet, which makes you eligible to receive some free crypto. However, to ascertain that you actually have these tokens in your wallet, the project usually takes a pre-dated snapshot of the users’ crypto holdings. If your wallet balance equals or exceeds the minimum requirement for the airdrop, then you can claim free tokens.
  • Bounty airdrop: Here, users must complete some social tasks before they can claim the bounty. Tasks could be sharing a post about the project on different social media platforms, joining their Telegram group, and tagging others on social networks to spread the word.
  • Exclusive airdrop: For this one, you’ve got to be a pro with an established history of using and supporting the project. And if you have the credentials, your wallet is eligible for this exclusive early supporter airdrop.

How to avoid crypto airdrop scams?

It is a simple rule of thumb that nothing comes for free. If users are receiving free crypto tokens with minimal effort, it is likely to have some risks involved. Therefore, it is essential to DYOR before you sign up for a crypto airdrop that requires you to connect your wallet to a website.

Phishing scams are fairly common with crypto airdrops. Here, scammers use fake airdrop links that lead users to a bogus website. If you connect your wallet to this website, you will lose all its content. Scamsters are clever, but you can outsmart them by simply checking a project’s certified handle to ascertain if they have announced airdrops.

Scamsters come in many shapes and sizes. They use phishing emails or direct messages frequently. These require users to transfer tokens to an unknown crypto wallet to claim the airdrop. However, genuine airdrops never come with such conditions attached. Always play it safe and avoid sharing funds or your seed phrase.

Dusting attack is another type of crypto-airdrop scam, where the attacker will transfer a small amount of crypto—called dust—to an inactive user. The hacker invades the user’s privacy by tracking down the wallet’s transaction activity and token distribution, exposing the individual or entity using the wallet.

Conclusion

Crypto airdrop is a trending marketing technique to create a buzz amongst the crypto community. Nevertheless, most of these end up as pump-and-dump schemes, where creators issue tokens only for airdrops. The idea is to create enough hype around the token to list it on an exchange. Once these tokens are listed and priced at a considerably high amount, creators sell their sizable portion, leading to a crash in the price of the token for the remaining holders. While airdrops are a great way to market a project by giving back to the community, it is advisable to tread cautiously.

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user’s own risk.

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