Cryptocurrency airdrop is a marketing tactic in which cryptocurrency is sent to different crypto wallets. Small amounts of newly launched cryptocurrency are distributed to active users on a blockchain. While this is usually done for free, the distributor can also ask for a small service in return. This service can be as simple as retweeting a tweet with a cryptocurrency launching announcement.
With the help of an airdrop, the developers of a new blockchain project can easily market their crypto, and make it well known in the crypto community. This can be done both with crypto coins and tokens.
Working Mechanism of Crypto Airdrops
Most blockchain-based companies, when they launch their virtual coin or token, perform a crypto airdrop. This helps the startup in marketing and kick-starts their crypto project on a positive note.
Most crypto startups do this right before their initial coin offering (ICO), to increase the trading volume on the launch day. This helps greatly in making more people aware of the launch of a new crypto project.
You can often find more information about an airdrop from the crypto company’s website. They might also post about it on social media, and talk about it in crypto forums. Users’ wallets are scanned, and they’re sent the airdrop depending on their crypto holdings, and according to the blockchain they’re currently on.
To become eligible for an airdrop, users might be required by the issuer to have a specific type of cryptocurrency in their wallets. Moreover, they might be asked to retweet or post about the launch on their social media handles.
Some airdrops also require you to get connected with a member of the project or write a blog post about the launch to claim your gift.
Types of Crypto Airdrops
With the basics out of the way, let’s take a look at some of the most popular types of cryptocurrency airdrops.
Standard airdrops do not have any complex requirements for the users to claim their reward. All a user has to do is show their interest in the crypto project, and they will automatically receive the airdrop in their crypto wallet.
After expressing their interest in the project, the user has to provide their wallet address, and they’ll be all set to receive the airdrop whenever it arrives.
Standard airdrops have a maximum limit on how many coins each user/ wallet can receive. Since the number of tokens allocated for the airdrop is also limited, these airdrops work on the first-come-first-serve principle.
These airdrops may have a token limit per wallet, but users can easily create multiple wallets to receive a huge combined amount of tokens. These airdrops are usually only available for very active blockchain users who are quick enough to register for the airdrop before the reserve gets depleted.
Just like in the real world, bounty airdrops pay the users upon completion of certain tasks. Most of the time, these tasks are promotion related and ask the users to post about the project on their social media handles, retweet a recent tweet from the project’s Twitter account, or spread awareness about the project by talking about it on cryptocurrency forums and linking back to the project’s website in their answers.
Referral bonuses are also available for users who make blog posts, make other users sign up for the project, and join the project’s discord server.
Before the airdrop, users are instructed to perform certain tasks which reward them in the form of points. These points then correspond to the amount of cryptocurrency a specific user will get when the airdrop arrives.
Once a user reaches the maximum points threshold, they’ll qualify for the airdrop, and might also get the bounty rewards before everyone else.
As the name suggests, exclusive airdrops are only available to an exclusively selected group of users. The criteria for selection for these airdrops are always unclear, and the reward amount isn’t necessarily connected to the crypto holdings of a user, but rather depends on their project activity, and their forum engagement.
Exclusive airdrops are very centralized and can be used to reward even accounts with little to no holdings.
These airdrops are fully automated and are cashed into the accounts of users who have a specific crypto token in their wallet, and how many tokens that account holds.
Because of the transparent nature of blockchain technology, all the users on the blockchain can see the accounts being rewarded with the airdrop. This ensures trust and transparency in the coin/ token distribution process.
Raffle Airdrop is a mechanism that helps control and randomize the wallet selection process for an airdrop. In this type of airdrop, the project invites users who might be interested in receiving their airdrop. Since the number of tokens allocated for the airdrop is always limited, the number of users interested in the airdrop far exceeds the supply of tokens.
Raffle tickets are issued to users based on their activity level, and upon completion of certain tasks.
So, in the end, a raffle occurs, and the wallets eligible for receiving the airdrop are randomly selected, and the airdrop is cashed into them.
Whenever a cryptocurrency project feels the need to launch an airdrop, they begin making the effort to do so. The airdrop can be introduced because of a marketing strategy, or to incentivize the existing users in a blockchain. The key step in this process is choosing the right type of airdrop, and choosing the eligible people for it.
If the airdrop is public and broad, the crypto startup will then need to choose the wallets eligible for the airdrop, and make some public announcements regarding the airdrop. In their social media campaign, the startup will ask for wallet dresses, and might also ask for the email addresses of the interested individuals. This helps the startup grow its user base, and collect more emails for marketing purposes shortly.
On the other hand, specific crypto airdrops might also require the users to take a screenshot of the portfolio, and send it to a specific email address to get enrolled in the airdrop. After the eligible profiles and wallets are selected, the airdrop can be processed. That is a specific time frame for this type of snapshot, and anyone registering for the airdrop after that time is not considered eligible.
The ones they startup are done collecting data from the users interested in their airdrop, they can then create a smart contract to facilitate the airdrop. The startup will have to use its treasury wallet to release the coins mentioned in the airdrop details, and they have to make the information public to retain trustability and transparency.
Whenever the airdrop transaction is made, the whole process can be seen live. The tokens leave the treasury wallet of the startup and are cashed into the target wallets eligible for the airdrop.
When you receive the rewards of an airdrop, you don’t have to make a request for them or click somewhere to accept them. They’re automatically cashed into your wallet. Depending on the wallet you’re using, you might be required to add a token address and type to begin seeing accurate token details.
Crypto Airdrop Scams
Keep in mind, that spending money, or sending your tokens to a wallet is never a part of the crypto airdrop process. Since airdrops are purely commercial, they’re completely free of cost.
Many crypto airdrop scams require the users to send a very small amount of a token to a random address to become eligible for the airdrop. These scams are termed dusting scams, and the scammer benefits from the accumulated amount of tokens received from many wallets.
In these scams, phishing websites are created, and investors are requested to connect their wallets to the phishing website to become eligible for the airdrop. The website will also provide the investor with popular wallet options to connect. As the investor types their wallet address and key phrase into the website, their details are stolen, and they’re deprived of their cryptocurrency.
Rug Pull Scams
Some airdrop scams involve a startup asking investors to invest in a specific token to receive a rare airdrop later on. Usually, these airdrops are original. However, the startup gets lots of investments into a specific token on NFT, which increases its overall price.
After increasing the price of their NFT or token, they immediately sell their shares for a huge profit.
How to Avoid Crypto Airdrop Scams
Whenever you receive a random crypto deposit into your account, you should become vigilant. Moreover, a crypto investor should always do due diligence before investing in any crypto project. This will keep you safe from cryptocurrency scams and will keep your wallet and investments safe.
Never Connect to Unknown Websites
An investor should never attempt to connect their wallet to an unknown website. Even if they have to do so, they should first verify the legitimacy of the website before connecting. Moreover, investors should never click on external links unless they are from well-reputed projects.
Crypto holders and traders should bookmark the website they frequently visit and use for their transactions. This will help keep them safe from connecting to fake phishing websites.
Find Airdrops on Social Media
Whenever a crypto project has to do an airdrop, and publicly announce the decision on their social media handles. So, whenever you’re interested in an airdrop, you should follow the project’s social media accounts for the latest updates. Keep in mind that some high-profile scams can even try to replicate the social media accounts of the project.
Create a New Wallet
If you’re unsure about the security of an airdrop, you can always create a separate wallet to receive the airdrop. Once you receive the tokens in your new wallet, you can easily transfer them to your main wallet, or anywhere else.
If you want to increase the security of your cryptocurrency portfolio, you can create multiple wallets, and divide your assets in those wallets.
Crypto Airdrops and Taxes
The eligibility of an airdrop for tax depends on where the airdrop receiver is living, and what the local law has to say about the process. For example, in the US, crypto airdrops are considered as your income and are taxable.
One of the biggest difficulties you might face when making tax returns for airdrops is that the token in question might not have a fair market value, and might not be sufficiently liquid just yet. Airdrops are usually considered as your income, and their value at the time of receiving into your wallet is considered for tax purposes.
Keep in mind that the airdrop income is considered taxable only once the receiver has gained control over the tokens in the airdrop. However, if the airdrop is locked, it won’t be considered taxable as it is still not a part of your income.
After receiving the airdrop at a specific price, it might depreciate. When you sell the tokens in that airdrop for a loss, this is considered a separate transaction, resulting in capital loss. In your tax return, you’ll have to recognize your income when receiving the airdrop and register a loss when you sell the tokens. On the other hand, if you’ve sold the tokens for a net profit, you’ll have to register the capital gain in your return, and you’ll be taxed for that gain.
Benefits and Drawbacks of Crypto Airdrops
Crypto airdrops are a part of the marketing strategy of crypto startups to increase their exposure and get an edge over the competition. Since crypto airdrops are a huge thing in the crypto space, there are businesses dedicated to airdrops, and users can subscribe to their newsletter and follow their social media accounts to get the latest news about airdrops.
These businesses also help startups list and promote their airdrops, and can thus prove helpful for the users interested in airdrops as well.
Many experts agree that to be successful, every cryptocurrency project must do some form of marketing. That’s because every cryptocurrency relies on its market cap, and the number of trades being made per day increases the value of that cryptocurrency. So, crypto airdrops are used by startups to promote the widespread usage of a cryptocurrency, and this helps increase the value of that token.
Some crypto startups focus their airdrops specifically on their loyal investors who hold and trade their tokens the most. Startups can also distribute tokens in an airdrop to all the wallet addresses interested in receiving the airdrop. This helps diversify the market activity of their token, which might otherwise take a lot of time to happen.
Just like everything else in the crypto space, airdrops have their drawbacks as well. One of the biggest disadvantages of these airdrops is the process of redeeming the tokens into your wallet.
For example, some suspicious websites might require interested users to sign up and connect their wallets to connect with them.
If you end up providing your private details on a suspicious website, they might steal your cryptocurrency by accessing your wallet.
Airdrops might also have the key objective of increasing the market cap of a specific token by enticing the users to invest in that token.
Once the token reaches a specific value, the developers can “Rug Pull” the investors, and sell their tokens at a high profit. At the end of this, the investors will be left with significantly depreciated tokens in their wallets. Even if the airdrop is legitimate in this case, it will be completely worthless for the investors.
Big investors might also consider airdrops as worthless and low-value projects. That’s why airdrops have started to focus more on miners or stakers on their platform, which make a significant contribution to the community. This is way better than traditional airdrops which reward non-significant contributors to the community.
Lastly, airdrops might lack liquidity. If the tokens distributed in an airdrop are not made tradable, they’ll be worthless for the receivers. Initially, crypto projects calculate their value and might claim the value of their airdrop to be hundreds or even thousands of dollars. However, if the users aren’t able to trade the airdropped tokens, the airdrop is of no value.
Crypto airdrops include newly launched cryptocurrency projects dropping free cryptocurrency tokens into the wallets of the users who are engaged with their project right from the start.
Airdrops also help increase the visibility of a crypto project by distributing free tokens into the wallets of interested users. This way, these airdrops encourage users to trade the free tokens they’ve just received.
On the other hand, many fraudsters might make fake websites to collect sensitive data including the wallet and key phrases of wallet holders. This data can then be used to steal cryptocurrency from those wallets. That’s why user must always choose reliable airdrops to keep their wallets safe. In the case of insecurity, the user can make a new wallet to receive the airdrop securely.