Airdrops have become something of a buzzword in the past 6–12 months in the cryptocurrency community. The sudden explosion of airdrops can be linked to the steep growth of the ICO market in 2017, where blockchain projects managed to raise over $4.5 billion through this new form of financing.
What are Airdrops?
Cryptocurrency airdrops are a process through which crypto-related projects distribute a certain percentage of their total token supply to their communities.
While this concept is somewhat similar to ICOs, the main difference is that tokens distributed as part of an airdrop are given free of charge to a project’s community. Simply put, recipients do not need to buy the new tokens as is the case in an ICO.
Why Do Blockchain Projects Conduct Airdrops?
Airdrops help the team behind a project achieve a number of goals that are essential to the growth of their venture.
Firstly, airdrops are a great way for projects to create a buzz. It is an excellent way to advertise a new project and the stand out from other ICOs in an increasingly crowded market. Airdrops aim to capitalize on the fact that many people like to receive free gifts, especially in the form of free money. In the crypto space, this can be witnessed on a greater scale as people are keen to acquire new tokens because they would like to take advantage of a potential rise in value.
Secondly, through airdrops, projects are likely to reach and interact with a wide number of people while recipients essentially receive free money. Moreover, due to the growing interest in airdrops, it is probable that a project will reach a wider demographic once it announces an impending airdrop.
Thirdly, airdrops may have an effect on the price activity of the token. This is due to a psychological effect called the endowment bias. This phenomenon refers to the fact that people believe the things they have possess more value than those they do not have. This feeling may lead to a greater amount of interest and research into the token on the part of the user. In turn, this could result in more demand for the token, which is what many blockchain projects aim to achieve.
Lastly, airdrops may lead to the proliferation of an active community that supports the project. An active community has many benefits for a cryptocurrency project, including community participation, increasing adoption, more developer contributions, etc.
How to Participate in an Airdrop?
Blockchain projects will run their airdrops in varying ways. The most popular method involves the recording of all wallets on the ledger at a certain block then using the information contained therein to distribute the tokens, i.e. taking a blockchain snapshot and then awarding all wallets that meet a certain criteria the new tokens.
Before the snapshot, developers will usually announce all relevant information in order to ensure as many people can participate as possible. This information includes how many tokens must be in the wallet at the time of the snapshot in order to be eligible for the airdrop.
To correctly participate in this type of airdrop, it is important to acquire the right information from the project’s channels. Because different projects are built on different blockchains, it is important to ascertain what cryptocurrency is relevant to the airdrop. Moreover, you need to ensure that you hold relevant tokens at the time when the snapshot is set to be recorded.
However, as the cryptocurrency space grows, developers have begun to require airdrop recipients to partake in other activities before being eligible. These activities will usually include liking or following the social media pages of the project or joining its Telegram or Slack channels in order to stay updated with all developments. Others may require sharing of content as well. Many blockchain projects have resorted to airdrops as a way of incentivizing community participation and to gain more followers to raise more funds during their token sale.
Another important factor to consider is possessing the right wallet. In order to claim your awarded tokens, it is essential to have a wallet that is compatible with the airdropped tokens. Not all tokens can be stored on all wallets. Thus, it is important to research this beforehand.
Unfortunately, the airdrop space — much like the wider cryptocurrency community — has attracted a fair share of scammers looking to take advantage of users. While airdrop scams may not be a big part of the space, it is important to know how they work in order to protect yourself from them.
Some people have taken to hard forking well-known cryptocurrencies and promised community members with free tokens from the new digital currency. For instance, a group of developers recently created Litecoin Cash by forking Litecoin and announced they would distribute tokens to Litecoin owners. However, the developers required community members to submit their private keys to participate in the airdrop. This raised a red flag and several cryptocurrency community members warned about this new “altcoin” as it is never a good idea to give away your private keys because that exposes you to theft.
Moreover, hackers may mimic legitimate projects that are holding airdrops and create social media pages pretending to be them. Using the information provided by the community, which usually includes private keys, the hackers attempt to rob the would-be recipients.
Lastly, some projects will require users to send a donation before they can receive any tokens in an airdrop. This is a warning sign as it is most likely an attempt to defraud cryptocurrency users.
When considering participating in an airdrop, make sure it is from a legitimate blockchain project and that you are following the airdrop’s guidelines closely to safely receive your new token.