What is an Airdrop?

An airdrop is when a project sends tokens directly to wallet addresses, typically for marketing purposes. Airdrops are often initiated to raise awareness of a start-up crypto project and promote it, although it can be done for numerous other reasons. Tokens can also be offered to those who participate in the project’s ICO activities, or who help promote a token launch. Think of it as a reward scheme. 

If you’re in the right place at the right time and you’re keeping an eye on up and coming projects,  you could earn quite a lot of tokens for almost free. This article will explain what an Airdrop is, how to benefit from it, and how to avoid related scams. 

Airdrop – a brief history 

 The first known Airdrop occurred back in 2014. Auroracoin (AUR) wanted to create a new digital currency for Iceland in the wake of the country’s national bankruptcy during the 2008 financial crisis. The project allocated 50% of all Auroracoins to Icelandic citizens and airdropped AUR to any citizen who registered a wallet address. Although the project ultimately failed to establish a national digital currency and fell apart, the airdrop mechanism it pioneered would become a popular tool for marketing, decentralization, and engagement. 

Other, more successful projects began incorporating airdrop mechanics into their launches. In 2017, the first airdrop tracking website airdropalert.com was launched, along with a slew of social media pages. Even centralised exchanges like Huobi helped to facilitate token airdrops for new projects that launched on their platform. Projects have been experimenting with Airdrops ever since and we’ve seen it change from rudimentary token giveaways to well-constructed, strategic marketing campaigns. 

Why do projects Airdrop crypto?

Projects can do Airdrops in many different ways and with various objectives in mind. One big reason is for marketing purposes. When crypto is given away for free, it attracts a lot of attention and more people hear about the project because of the giveaway.  

 A second reason is to increase the level of engagement that users have with a project. Projects want to prove their use case and build up a core user base, and they are willing to incentivise and kickstart activity on their platform by giving away a portion of their token.  

 A third reason for airdropping a token is so that ownership becomes more democratized and decentralized. If large amounts of a project’s token are held by a few whales, it has a negative impact on the token’s trading volume, and individual whales can swing the price wildly by buying and selling large quantities. When a token’s ownership is spread out, it becomes less susceptible to price swings and associated risks. This is especially true of governance tokens because tokenholders are the ones voting on how the platform is goverened. 

 A fourth reason, depending on local laws, is that airdrops may be treated differently from token sales from a legal and tax perspective. 

 Instead of just selling their tokens publicly or through private rounds like Initial Coin Offerings (ICOs), it’s possible for users to receive tokens simply by engaging with a project in its early stages. There is no universal way for a project to perform an Airdrop, and a projects can create their own Airdrop strategies. For example, a project can set a specific requirement for holding a certain token, or having an active wallet on their network. It may also request an action like making token transactions, staking them, playing a game, creating non-fungible tokens (NFTs), doing quests, or promoting the project on social media.  

If you follow CT (Crypto Twitter) or other crypto discussion channels, you may have heard about a recent Ethereum Name Service Airdrop that earned users tens and hundreds of thousands, for free. Ethereum Name Service issues NFTs representing Ethereum addresses and web domains for “web 3” – maybe you noticed the “.eth” endings on websites or Twitter handles. The project didn’t have a token at the time and so it shared the Airdrop of new ENS tokens with anyone who bought their NFT’s before a specific date.  

How to gain from Airdrops

You might be thinking, “please tell me how I can become eligible for one of these!” But, once again, as there is no single way to do an Airdrop, there isn’t a specific announcement we can advise you to look out for. Some projects make a big announcement about their Airdrop, and you’ll see it splashed over their official website and social media pages. Sometimes however, the projects don’t even inform anyone about the upcoming Airdrop and simply send the tokens to the early users – people who showed early belief in the project and contributed to its community in terms of engagement.

To give yourself the best chance of gaining from Airdrops, you should get involved in ecosystems, like Metaverse or Ethereum Rollups, and start exploring “tokenless” networks – create wallets, make transaction and play games. The more active you are in crypto-related web communities, the more likely you are to hear about up and coming Airdrops. Airdrop systems typically work on a ‘first come, first served’ basis – it’s not about who is the smartest or richest, but more about who is ready, waiting, and already engaged in the project before its official token launch.

How to avoid Airdrop scams 

 As with all things, it’s important to be careful and aware of any fraudulent activity. The natural law is that places with “easy money” often capture the attention of scammers. Rule number one; NEVER share your private key. There is no good reason for anyone to ask you for your key and it would allow a scammer to steal your tokens from your wallet. Secondly, if the project asks you to send them tokens in order to participate, it’s probably not a good sign. If you decide you still want to participate, make sure you do meticulous research first. Lastly, stay away from scam websites.  

One popular scamming method is to gain access to your tokens by sending you fake tokens. It is very easy to create a token and then airdrop the token into random wallets. A user will suddenly and unexpectedly receive a mysterious token. When they start investigating this mystery token, you are directed to channels or websites that phish your personal information with the aim of gaining your crypto exchange and bank passwords. In relation to personal info, if you have been part of the crypto ecosystem for a considerable amount then it’s essential to do a ‘clean-up’ every now and again. Go through all the sites you have connected to with your private wallet and remove any you no longer need. The less active sites (the ones you may have forgotten about) have a bigger risk of getting hacked.  

Too good to be true?

Remember that projects don’t do Airdrops out of pure generosity or for charity purposes –although some get closer to these reasons than others. More likely, Airdrops occur because it’s a good marketing tool for raising the awareness of a particular token. It might also be the best option to share the tokens from a legal standpoint. Additionally, it distributes the token to many users, democratizing the system and reducing the power of whale tokenholders. This can prove effective and necessary for a project’s overall reputation.

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