HomeHow Does a Crypto Airdrop Work?

How Does Crypto Airdrop Work?

Emma Dwyer
Emma Dwyer
16th Feb 2023

In the pursuit of driving adoption, crypto projects give out free tokens in bulk to their communities. This is known as an airdrop.

This article examines what crypto airdrops are, the pros and cons, and how to participate.

What Is Crypto Airdrop?

Crypto airdrops distribute free crypto tokens to those who have expressed an early interest in a new decentralized application, blockchain technology, or cryptocurrency project. The basic idea is to send newly minted tokens to thousands of wallet addresses to encourage the recipients to participate in a particular project.

However, the dropped tokens can also be used for various other purposes and are especially essential for protocol governance. Numerous DeFi and crypto projects have given governance tokens to their communities. Being a founding member of crypto projects certainly seems like a lucrative opportunity, especially as the value of governance tokens increases to thousands of dollars.

Airdrops also serve as a marketing tool for new protocols to attract more users when explaining the project details to newcomers. Free airdrops are an easy way to attract more users to increase activity on innovative protocols that still need their own tokens. Many cryptocurrency enthusiasts have benefited from free airdrops and made significant profits with a modest initial commitment.

Pros and Cons of Crypto Airdrop

Let's check out the pros and cons of a crypto airdrop below:

Raises the profile of a project through the marketing of an airdrop
Rewards early supporters with a stake in the project
Educates the public about the project
Security risks could arise if wallet owners connect their wallets to fraudulent websites
It could turn out to be a "pump and dump" scheme
It is possible to run out of tokens

How do Crypto Airdrops Work?

In an airdrop, the distribution often takes place on the cryptocurrency's blockchain. So, for example, if you provided your BTC address during an airdrop of a new altcoin, the dropped tokens will be distributed across the BTC network.

You need to provide your wallet address to receive an airdrop. The project management team will send the tokens to all qualified addresses once the airdrop is complete.

How is a Crypto Airdrop Different from an Initial Coin Offering (ICO)?

ICOs are designed to attract larger investors willing to invest significant sums in a project. These users are more inclined to pursue the project as an investment. On the other hand, airdrops often serve the purpose of raising user awareness among a smaller audience. Even if a modest airdrop does not benefit consumers financially, the overall goal is to convince less experienced users to use the virtual currency.

Different Types of Airdrops

The four most common types of airdrops you are likely to encounter are:

  • Standard airdrop

  • Bounty airdrop

  • Exclusive airdrop

  • Holder airdrop

Standard airdrop

As a marketing tactic, a crypto airdrop gives out a certain amount of free native coins or tokens to existing wallets. Typically, this happens during the initial coin offering; this is to boost the company's reputation and encourage the community to utilize the asset.

In order to take part in the distribution, you normally need to open an account on the project's platform and also provide your wallet address.

Bounty airdrop

In a bounty airdrop, recipients need to participate in a promotional campaign in order to receive the tokens. This might involve tweeting about the blockchain project or performing other tasks on social media platforms.

In comparison to a regular airdrop, a bounty airdrop requires a bit more work, but the tasks are straightforward and take little time to complete.

Exclusive airdrop

Tokens are distributed via an exclusive airdrop to a group of followers of an airdrop aggregator. In addition, these websites spread information about promising, exciting projects and upcoming events.

Holder airdrop

Individuals with a certain amount of another cryptocurrency in their wallets are entitled to participate in holder airdrops. Typically, a crypto project takes a snapshot of all cryptocurrency holdings on a given date and allows users to request an airdrop depending on their position in the market.

How to Participate in an Airdrop

As you know, each airdrop has a specific set of requirements. Because a crypto airdrop is mainly part of a promotional push, it may be difficult to find out if you qualify for upcoming events. An airdrop's participation requirements are often communicated after the fact, which makes qualifying notoriously difficult.

However, there are other options to explore:

• Visit specific airdrop websites.

• Search for the hashtag #airdrop on social media.

• Use various cryptocurrency services, goods, platforms, and blockchains in order to remain an active crypto user (which may be a participation requirement).

• Search forums and other websites devoted to cryptocurrencies for references to current or planned airdrops. For example, Reddit's "Cryptocurrency" subreddit is a very active forum.

The most important requirement for receiving cryptocurrency airdrops is a wallet with funds. An airdrop can only be received if you have a wallet address. Although utilizing an exchange address may be convenient, it is unsuitable for airdrops. Users should instead explore the many cryptocurrency wallets available to hold their money. One of the most popular wallets is MetaMask.

As always, do your own due diligence to protect yourself against fraudsters, and remember that any kind of crypto investment is high-risk and speculative.

Important Safety Measures When Searching for Airdrops

Despite some profitable airdrops in the past, most of these tokens are useless. In the worst case, a crypto airdrop can put your money and identity at risk. Scammers use cryptocurrency airdrops in various ways to lure naive investors. For example, developers can use an airdrop to steal your money or direct you to a phishing attack when working on unverified projects.

Airdrops can also be used to identify the owner of a crypto wallet. For example, sending small amounts of cryptocurrency to multiple wallets is known as a "dusting attack."

If you are interested in crypto-airdrops, you should proceed with due caution. Remember to check reliable websites such as CoinMarketCap for information about cryptocurrency projects that offer airdrops.

As an additional security measure, you should have a separate crypto wallet dedicated only to airdrops. You will avoid losing all your cryptocurrency if you set up a single private crypto wallet that you use only for coin airdrops.

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Author Bio
Emma Dwyer
Emma Dwyer
Emma is a law graduate with seven years of experience working in financial services. She has been writing in the cryptocurrency and blockchain tech space for two years now. Recently she worked as a Managing Editor and Head of Content for different crypto publications.