One term has been popular from the early days of crypto until date: airdrops.
These events promise participants free tokens, dropped right into their wallets with no strings attached (in most cases). At first glance, airdrops seem like a win-win scenario for everyone. Users get free assets they can either keep or sell, and projects gain exposure if enough people use their products.
But is it really this simple? Here’s a closer look at what crypto airdrops are, how they work, and the types you might find in the crypto space. Are they worth your time, or should you be very cautious?
What Is a Crypto Airdrop?
To start with, think of a crypto airdrop as a very clever marketing strategy, despite looking like the opposite at first glance. Blockchain projects dole out free crypto to users in massive giveaways with no apparent benefit to themselves. However, in exchange for these free tokens given to their users, these projects gain a great deal of exposure.
Their user base can expand very quickly during the airdrop processes, considering how they require users to perform simple tasks like signing up, spreading the word on social media, HODLing crypto, and more.
Most of the time, airdrops do not require much from participants. Sometimes, just owning a certain token or having an active wallet qualifies users to receive an airdrop. Airdrops are used during a project’s early stages to create buzz, to reward early supporters, to decentralize token ownership, or for some other purpose.
Why Do Crypto Projects Give Away Free Tokens?
Again, free tokens still sound counter-intuitive, regardless of how much exposure a project gains. Especially in a crypto space driven mostly by money. However, airdrops remain one of the most affordable and powerful marketing tools for many emerging projects. Crypto projects can choose airdrops as their marketing strategy for several reasons. One good reason could be to build a community. Airdrops help to attract new users and encourage them to engage with a project early on.
Projects seeking to decentralize ownership or reward loyalty can also choose to launch airdrops. Airdrops help to promote fairness and centralized control. Furthermore, they are great for keeping early adopters hooked on a project.
Finally, nothing generates more hype than free money. Airdrops are the biggest hype generators and can increase visibility for any project without having to create a big ad budget.
Different Types of Airdrops
Now that the reason airdrops are conducted has been established, it is time to understand the different kinds of these programs. Not all airdrops are created equal. Because of this, understanding the different types can help to decide whether a specific airdrop is worth your time or is a possible red flag.
The first kind of airdrop to be aware of is a “standard airdrop.”
These are the most common and require users to simply provide their wallet addresses. Users who meet certain criteria receive free tokens, and it is as simple as that. Sometimes, just signing up on a website can be enough to earn anyone a part of an airdrop.
The second kind of airdrop is called a “Holder Airdrop.”
These airdrops are also known as “snapshot” airdrops. Projects simply take a snapshot of blockchain wallets on a specific date. This means that anyone who holds a certain amount of a cryptocurrency when this snapshot is taken becomes eligible.
A popular example of this was the famous Uniswap Airdrop, which rewarded users who had interacted with the protocol before a set date.
The so-called “Bounty Airdrops” are also a popular example.
In these cases, users complete small tasks like following Twitter (X) accounts, joining a Telegram group, retweeting posts and so on to become eligible. These airdrops are also very common, but can be tasking at times.
“Exclusive Airdrops” are another example, although not as popular as the rest.
These are invite-only events and are targeted at specific users like early supporters, testers or community contributors.
Finally, Fork-Based Airdrops are given to users when a blockchain forks.
Sometimes, a network has to split into two for a variety of reasons. When this happens, holders of the old chain’s tokens are rewarded with new tokens from the new tokens. A great example of this was the Bitcoin Cash (BCH) airdrop for Bitcoin holders during the 2017 fork.
Why People Chase Airdrops
If the “reason” for chasing airdrops wasn’t already apparent, the idea of “free money” is very hard to pass up. However, there might be several other reasons why users actively seek out airdrops. For starters, airdrops require zero investment. This means that users do not need to spend anything in exchange for a low-risk opportunity to grow their holdings.
Users might also want to discover new projects with airdrops, as these events can introduce anyone to promising early-stage projects. If a project succeeds, those free tokens could become valuable.
Being part of an airdrop also means that users are early to a project. As such, the rewards could be immense if said project blows up sometime in the future. Finally, airdrops are great for portfolio diversification. Even small amounts of tokens can add up over time, especially in a volatile space like the crypto market, where prices can shoot up unexpectedly.
Are there risks?
“Free” doesn’t always mean “free,” especially in the crypto space.
Airdrops can come with their fair share of hidden risks, and here are some of them.
1. Scams and Phishing Attempts
Some airdrops are fake. Plain and simple. Many of these events are designed to steal users’ private information and might even ask for things like private keys, ask you to connect to wallet drainer Dapps or even download malware.
2. Dusting Attacks
Sometimes, an airdrop can offer only a tiny amount of tokens (known as “dust”).
Said “dust” often comes with a more sinister purpose. In many cases, these tokens can be used to track wallet activity. They can even be used to analyze transactions remotely or exploit users if linked to identities.
3. Pump and Dump Schemes
One more risk from airdrops comes from good old pump-and-dump schemes.
Many projects use airdrops to create hype, only to dump tokens on users right after the post-launch pump.
4. Tax Implications
Some countries often view airdropped tokens as taxable income. This means that receiving airdropped tokens might incur tax debt, even if the tokens later drop in price.
How to Stay Safe During Airdrops
Regardless of risk, airdrops remain highly lucrative. However, users who wish to hunt for airdrops must go in with their eyes open. Here are a few safety tips to consider before jumping in:
- For starters, always use a separate wallet for claiming airdrops, especially to prevent cases of wallet drains.
- Never share your private keys or wallet phrase, as no legitimate project will ever ask.
- Do proper research on any project before jumping in. Consider sources like Twitter or Reddit to see what other participants have to say.
- Avoid clicking unknown links or downloading files from unverified sources.
- Check the contract address for any project on Etherscan or Solscan before interacting.
Finally, when in doubt about a project, skip.
Notable Airdrop Success Stories
Regardless of the risks, some crypto airdrops have changed lives. Some of them include:
The Uniswap (UNI) Airdrop
Uniswap rewarded its early users who had interacted with the platform before September 2020, and airdropped a staggering 400 UNI token (which were worth over $1,000 at the time).
Ethereum Name Service (ENS)
Users who had registered “.eth” domain names also got airdrops of ENS governance tokens in 2021. Users received thousands of dollars worth of tokens depending on how active they had been.
dYdX Airdrop
Similar to the Ethereum Name Service, dYdX distributed DYDX tokens in 2021 to users who had traded on the platform. This airdrop was so massive that many recipients made tens of thousands of dollars. All of the above cases show that real opportunities exist in the crypto space. However, they are often rare and are tied to genuine platform usage, not random sign-ups.
Overall, investors are advised to treat every airdrop as an opportunity, not a guaranteed win. Remember to take the time to read the fine print and use best practices to protect yourself. In the end, airdrops can be either free tokens or hidden traps. The outcome depends on how you play the game.
