If you dip your toes in the cryptocurrency or NFT communities on Twitter, Reddit, or Discord, you might have seen people excitedly showing off “airdropped” tokens or digital images from their wallets.
Due to increasing competition within the cryptocurrency and NFT space, developers have come up with a unique method called “airdropping” to promote their projects upon their launch.
So, what is an airdrop, and how does it work?
What Is An Airdrop?
Not to be confused with Apple’s AirDrop feature, a crypto airdrop is a marketing tactic in which developers of a certain blockchain project send users tokens or NFTs for free. The allure here is that it is free, and the aim is for developers to promote their project before it officially launches.
Startups primarily deploy airdrops to generate community chatter and raise awareness about their cryptocurrency or NFT project. If there is a lot of publicity, airdrops also help boost the price of a token upon its initial coin offering (ICO) or first listing on a cryptocurrency exchange.
The Auroracoin cryptocurrency is widely considered to be the first airdropped token. The Auroracoin airdrop took place in March 2014 and was distributed for free to residents in Iceland. People who signed up for the airdrop received 31.80 Auroracoins (AUR), which at the time was equivalent to about $12 per AUR.
Auroracoin was initially developed to become Iceland’s national digital currency. However, several months after the airdrop, the token plummeted in value, and the project has pretty much been abandoned. Auroracoin’s Twitter account stopped updating in December 2020.
How Do Airdrops Work?
Different startups have different ways to launch airdrops, but there are a few standard practices. First and foremost, users interested in receiving a specific token or NFT have to own a wallet to store the airdropped item.
Users are typically required to join, follow, and share the project’s social media channels, along with engaging with community groups on platforms like Discord and Telegram. Airdrops typically have a registration window with limited spots for participants to sign up and join before a specific deadline. However, airdrops can occur more than once depending on reception, so missing out the first time around isn’t always terminal.
Some memorable airdrops include:
- Decred, which aims to develop a decentralized digital currency with better security and scalability, airdropped 258,000 DCR tokens. One DCR token was about $1 to $2 at the time but is now worth approximately $108 per CoinMarketCap.
- NEO Council’s Ontology (ONT) airdrop to promote the migration of the Ontology blockchain to its network distributed about $42 million worth of ONT tokens.
- Ethereum Name Service’s (ENS) airdrop to promote its DAO governance token, ENS, was a huge success, with the market capitalization of the token now sitting at around $1 billion whilst its supporters wait for a Coinbase listing.
Popular NFT projects, including CryptoPunks and the Bored Ape Yacht Club, previously launched airdrops and continue to from time to time to keep their followers excited.
In October 2021, the Bored Ape Yacht Club team announced on Twitter that it will launch an ERC-20 token in the first quarter of 2022. Considering the fanfare surrounding the announcement, it won’t be a surprise if the first batch of tokens is distributed via an airdrop.
Where Do People Receive Airdrops?
Developers looking to launch an airdrop will typically announce the time, date, and other relevant details of the airdrop on their official website, their Medium page, or any other social media platform where the developers have a presence such as Twitter or Telegram.
Alternatively, cryptocurrency enthusiasts can visit third-party airdrop tracking websites like AirDropAlert to see which free new tokens or NFTs they would like to receive.
Types of Airdrops
Not all airdrops are the same. There are four main types of cryptocurrency airdrop:
- Standard Airdrops: The “general admissions” stream in airdrop lingo. Anyone is eligible just by submitting required information and maybe completing certain promotional tasks.
- Exclusive Airdrops: The “VIP” stream. Typically reserved for loyal followers of a blockchain project with handsome rewards.
- Bounty Airdrops: Similar to a standard airdrop, participants are asked to do more promotional work to spread the word about a project, typically on Facebook and Twitter.
- Holder Airdrops: Participants have to hold an existing cryptocurrency, like ETH or BTC, as a precondition to receiving an airdropped item.
Advantages of Airdrops
Besides being a highly effective marketing strategy, airdrops also pretty much guarantee widespread distribution. Many cryptocurrency or NFT projects are built on or are a hard fork of an existing blockchain, such as Ethereum and Bitcoin. Holder airdrops are popular because many in the crypto space already own ETH or BTC (or other cryptos related to the project), and it guarantees a wide distribution model.
The result is a win-win situation for both the developers and the recipients.
Disadvantages of Airdrops
While airdrops are an exciting promotional activity, they do have considerable risks. There are numerous cases of scammers using airdrops as pump-and-dump schemes. Airdrop participants are also vulnerable to phishing attacks and marketing spam if the developer sells their data to an unauthorized third party.
Airdrop scams are becoming more sophisticated and hard to spot, even for seasoned crypto enthusiasts. The general rule of thumb is if an airdrop (or any other project, for that matter!) asks for highly sensitive information such as your seed phrases or private keys, do not get involved.
Developers also face some level of risk in initiating airdrops. For example, if many holders of a newly airdropped token suddenly decide that the token is not worth the hype and sell it, the token’s value crashes, jeopardizing the startup’s business.
Cryptos and NFT Airdrops Build the Hype
Many startups have found success by airdropping coins or NFTs before a general launch. For recipients of an airdrop, it can be an exciting process as taking part in what is technically a “soft launch” gives the feeling of exclusivity.
However, as with any marketing strategy, airdrops can be easily manipulated by those with ill intent to cheat participants of their money. If you are looking to experience the fun of an airdrop, always do proper research on a blockchain project before investing money into it, and check the legitimacy of an airdrop site before sharing any sensitive information.
Tax season is upon us and those with new-found Bitcoin wealth are scratching their heads. Do we have to pay taxes on our cryptocurrency profits? Read on for the answer to this and more.
About The Author