A Brief Explanation of Crypto Airdrops, Note This!

Are you still confused about what is meant by a crypto airdrop? Then you are in the right place. The following is a brief explanation of crypto airdrops.

Airdrops involve crypto projects sending out free tokens in bulk to their communities in an effort to drive adoption.

What Are Crypto Airdrops?

Crypto users who frequently interact with new and existing platforms will likely receive an airdrop at some stage.

Crypto airdrops involve blockchain-based projects and developers sending free tokens to members of their community as part of a wider marketing initiative.

The main idea is to send freshly minted tokens to hundreds or thousands of different wallet addresses in the hope that recipients will be more inclined to engage with related projects, even if it's just to learn how to cash out free tokens for something else.

The concept is similar to finding a free discount card in the mailbox to encourage you to visit a new store in the area. However, crypto airdrops do not predominately make recipients spend money, but instead raise awareness for new projects and services.

In most cases, crypto airdrops are awarded to users in exchange for completing certain tasks. These tasks often involve things like:

• Follow accounts on social media.
• Share or retweet one of their posts, including the hashtag.
• Send or receive transactions (using specific platforms or crypto wallets).
• Create an account and register to receive updates.

Benefits of Crypto Airdrops

The main reason for organizing crypto airdrops is to promote blockchain startups, projects or services.

By issuing tokens to users, teams can bootstrap their projects and ensure a fair distribution of tokens among their community from day one.

Additionally, recipients of these tokens are incentivized to raise awareness and help the project reach a wider audience once the tokens start trading on exchanges. The more interest around the token, the more likely the price will rise.

Airdrops often gain traction by promoting launches on project websites, cryptocurrency forums and social media.

This is no different than receiving a HelloFresh voucher in an email with a discount code, as the campaign is designed to bring more people to the platform through financial incentives.

Legitimate crypto airdrops will never ask users to make any kind of investment. Rather, it is a way to stand out among competitors who have been pursuing external funding before issuing their tokens.

As recipients receive “free money” in their wallets, there will be an airdrop that is nothing more than a pump-and-dump scheme.

More specifically, the creator is issuing a token and hoping that there will be enough hype around it for it to be listed on an exchange. Once the tokens started trading, the creators sold most of their tokens, causing the price to fall.

Another potential attack vector is the so-called dust attack. A scammer will send small amounts of cryptocurrency to unsuspecting users to erode their privacy.

Then, the attacker would track the transaction activity of distributed wallet tokens to de-anonymize the person or company operating the wallet.

Finally, because airdrops are considered revenue by the US Internal Revenue Service, that means any time you receive a certain amount of “free tokens” you actually have to pay taxes for them, whether you wanted the crypto airdrop in the first place or not.

Also read: The difference between Crypto Coins and Tokens and Their Effect on Prices

Crypto Airdrop Example

The cryptocurrency industry has recently seen several crypto airdrops that took users by surprise. The SOS OpenDao token airdrop rewards all creators, collectors and fans non-fungible tokens (NFT) who have previously traded in the market OpenSea NFTs.

The recipient does not have to complete any task other than manually claiming the token from the website. The airdrop helped OpenDao grow its Twitter following to more than 60,000, and more than 120,000 addresses claiming the token.

A similar initiative comes from Gas DAO, which issues GAS tokens on the Ethereum blockchain. Anyone who has ever paid $1.559 or more in gas fees on Ethereum is eligible for the airdrop, with tokens that can be claimed via the website.

More than 57,000 addresses have claimed the airdrop. The GAS token provides voting rights on Gas DAO, which aims to be the voice of active users of the Ethereum network.

The third example is the LOOKS airdrop arranged by the LooksRare team. Users with a transaction volume of over 3 ether on OpenSea between June 16, 2021, and December 16, 2021, are eligible for LOOKS tokens after listing the NFT for sale on the LooksRare marketplace. 

Users holding LOOKS tokens receive a share of the trading fees generated by the LooksRare platform. Moreover, users can stake LOOKS to earn more tokens.

Because crypto airdrop primarily designed for promotion and marketing efforts, it can be difficult to ensure you qualify for future events.

Also read: BNB and BTC analysis Thursday 19 May 2022

Each airdrop has individual requirements to assess eligibility, although most are easy to find. Airdrops involving blockchain snapshots are often communicated after the fact, making qualification difficult.