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Cryptocurrency developers are finding it harder and harder to encourage mass adoption of their coins. The fact of the matter is that the market is oversaturated, with over 1500 cryptocurrencies available for potential customers. And we are way past the times of late 2017 when people would buy virtually anything that had the crypto label on it. The demand is much more cautious and much more vary of investing in crypto, so new token enterprises are forced to come up with new ways of spreading the word about their coin. And what better way of spreading said word than to spread the coin itself. Recently a new system of spreading new coins has surfaced and it has been labeled as cryptocurrency airdrops.
If you have dabbled in cryptocurrency longer than it takes for Carlos Matos to announce a new way of becoming financially independent, you have probably came across the term. While in reality airdrops are mostly utilized to deliver supplies and resources to poor, disaster-stricken areas of the world, crypto airdrops are somewhat different. The key difference is that the initial intention of a crypto airdrop isn’t to help the one who receives the token, but rather to help the developer promote and expand the reach of his token. Sure the user can potentially be airdropped a coin with excellent future that will make him a lot of money but that usually comes a lot later.
What is a crypto airdrop?
Crypto airdrops are procedures of distributing new tokens/coins by “airdropping” them in a certain proportion to holders of particular currencies, such as Bitcoin, Ethereum, NEO etc. or to anyone who possesses a way of storing/owning cryptocurrency (aka who owns a wallet which can store the airdropped coins). The distribution is done for free; almost anyone in the world can be “targeted” by an airdrop. In simple terms, if you HODL one type of coin, you are automatically eligible to claim other coins/tokens just because you were holding the parent coins/tokens on which airdrop is being done.
There are basically two major types of airdrops:
- The ones that come as a surprise
Already established blockchain enterprises can choose this route. Getting to know about it might depend on how involved one is in the crypto community. With these airdrops people are randomly accredited their coins; they will need to do some research to find out where the coins exactly came from.
- The ones that are announced beforehand
Some startups might prefer a route containing pre-airdrop announcements to get the hype train rolling. An extensive internet marketing campaign is conducted that aims to ensure the technology will be adopted as widely as possible. Usually with these schemes potential new coin owners are required to sign up to a web-page or perform some other simple verifying task. They will also need to provide a valid wallet address with which they will be able to claim the airdropped coins.
Why do an airdrop?
The motivations for this practice are many, as there are quite a few practical reasons for conducting an airdrop of your coin:
- Even Distribution Of the Total Token Supply
Evenly distributing the total token/coin supply is extremely important. Having most of your tokens end up in the hands of a few investors is a bad thing, as they can become malicious and affect the token prices with their market actions. Some tokens come with voting/staking rights; someone with centralized access to over 50% of the total token supply in such system could theoretically perform a network takeover.
Instead of spending money on billboards, T-shirts and Facebook ads, companies can announce an airdrop and have the word spread organically. This is bound to happen; there are many insiders and twitter accounts/telegram groups that are dedicated to following new airdrops. If even one of those hears about an incoming airdrop you better believe that news about it will spread like a wildfire. You will find projects running schemes such as:
Ø X coin is airdropping 125.000 USD in X tokens to first 15,000 airdrop participants
Ø Get up to 60 Y tokens for free just by joining the Y Token Telegram group etc.
These promotional schemes promise you tokens for doing minor tasks like signups or clicking on referrals.
- Generating databases
Marketing is all about personal data which companies use to analyze peoples interests and find out how to better sell them products. Airdrops can be used by blockchain-based companies to generate valuable databases for their organizations. In this scheme, users are awarded cryptocurrency for completing online forms that contain valuable user information.
Airdrops can be a way to positively affect the price an existing coin. The demand for the original cryptocurrency could go up as investors buy it just to be a part of an upcoming airdrop. Something similar happened when investors piled into Bitcoin ahead of its split into Bitcoin and Bitcoin cash last summer. A report in 2017 by Fundstrat Global Advisors highlighted upcoming forks or airdrops in cryptocurrencies such as Neo, Ethereum classic, Zclassic and Litecoin. They felt that these upcoming forks and airdrops may be a short-term reason to focus on these tokens.
However, some people have differing opinions. The airdrop phenomenon is also still “fairly fringe” and “won’t affect the price,” said Blockchain Intelligence Group’s Anstey. Other analysts are also skeptical that the trend helps boost public awareness. “Airdrops are being misused and abused, to the point where they are starting to lose their intended effect,” William Mougayar, blockchain investor and author of “The Business Blockchain,” said. He further added: “The more scammy and over-promoted ICOs will tend to send airdrops liberally without a proper user opt-in authorization. Sadly, airdrops are the new spam mail or coupons junk mail. They are hit and miss on benefits.” Looking at the airdrops from this angle, you can even deduce that they could affect the coin price negatively. Something similar happened with MoneroV, which was announced as an incoming airdrop of the popular price coin Monero. The only issue here was that Monero distanced themselves from the ICO and even suggested that the airdrop was a scam. As a result, Monero’s price (that was already slowly dropping thanks to a bearish market) suffered even more.
- Rewarding Faithful Early Investors
Many developers appreciate the early supporters, investors and adopters of their technology and will often times look to showcase their gratitude by handing these people new tokens – for free. Knowing that a project has a reward program for early investors can motivate people to invest and to hold their tokens for longer periods of time.
- Mass adoption
Adoption of blockchain technology is an issue, as only a fraction of the population is currently “on board”. Airdrops try to address this issue.
“I think we’ll see airdrops as an increasingly sophisticated approach to customer acquisition,” said Spencer Bogart, partner at San Francisco-based Blockchain Capital.
“Slipping money into someone’s pocket is a powerful way to get their attention,” Bogart said, adding that the airdrop process could spur mass adoption of a new cryptocurrency better than an initial coin offering.
While ICOs are a legitimate way of both spreading the tokens and raising funds for development, it can be a challenge to reach enough potential investors. According to available data, maybe a third of the total amount of ICOs out there reaches their funding goals.
“When you give something to someone for free they will pay a little more attention than if you ask them to sign up,” said Erik Voorhees, CEO of ShapeShift, a platform for trading digital tokens.
- Regulatory issues
Another potential benefit of airdrops is less regulatory uncertainty than with an initial coin offering.
China and South Korea have officially banned ICOs on their territories, while the U.S. Securities and Exchange Commission has stepped up its efforts to bring about regulation that will affect the fraudulent ICOs. Cryptocurrency companies have received subpoenas or information requests regarding their ICOs, resulting in increased pressure to comply with US financial laws.
Hard forking cryptocurrencies like Bitcoin, Ethereum, Litecoin, Monero is a popular way of creating a new coin, and this coin can potentially be distributed to existing holders of the parent coins via airdrops.
How to stay updated on crypto airdrops?
There are several ways to stay updated on potential new coins on the market. The most effective one is to join an active crypto community that deals with crypto airdrops. Websites like Twitter, Reddit, Bitcoin and crypto talk forums, Telegram groups, Discord chats, Google searches, any of those can be a source of airdrop information. There are web services like airdropaddict and Icodrops that provide vital information that will help users stay informed about upcoming cryptocurrency airdrops. If a quality airdrop is announced the word about it is bound travel fast and the information on how and when to participate in it should be available on time.
Claiming the airdrop
Claiming your airdropped free crypto coin/tokens can differ from project to project. As a general rule, you will need a wallet where you are in control of your private keys. Some of the most popular options out there are:
- Ledger Nano S (Hardware Wallet)
- Trezor (Hardware Wallet)
- Exodus (Desktop Wallet)
- MyEtherWallet (Web Wallet)
Large amount of airdrops today are done in ERC-20 tokens, therefore any Ethereum/ERC 20 token compatible wallet will do you just fine in most cases.
Crypto popularity seems to be growing with every passing day. With it, numerous new cryptocurrencies are being literally thrown into people’s pockets. However, not always is this free money completely free, as there are many people out there looking to scam you. As a general rule of thumb, you should be wary of EVERY new coin. However, there are a couple of key red flags:
- Project asks for your private keys
No one needs to have your private key in order to be able to check your wallet balance. They can do so very easily with a blockchain explorer tool.
- Project asks you to send money
Airdrops are meant to be free. There is absolutely no reason why an airdrop provider would need your money. If they ask for this, turn away and never respond to them again.
- Official sources don’t match
If a coin is actually doing an airdrop, expect its social media like Facebook and Twitter to have data about it. If there is no data about the airdrop on said media, you might be looking at a scam. Be sure that the social media you are looking at is official; scammers are known for creating fake social media profiles with slightly tweaked handles. If it looks like a scam, quacks like a scam and smells like a scam, then you probably know what it is already. Your best bet here, as with anything crypto related, is to stick to official channels and to always do your own research.
Airdrops bring a new dimension to the crypto world; with most of them you are getting free coins. While maybe one of 100 will amount to something in the future, you could be kicking yourself in the butt once you realize that the coin you were too lazy to tweet about is now worth 100 dollars a pop. Hopefully this general guide on airdrops will prevent you from developing a case of butthurt and help you earn a bit of money in the process.
CaptainAltcoin's writers and guest post authors may or may not have a vested interest in any of the mentioned projects and businesses. None of the content on CaptainAltcoin is investment advice nor is it a replacement for advice from a certified financial planner. The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of CaptainAltcoin.com