What is a cryptocurrency airdrop?
A cryptocurrency airdrop is when a blockchain project distributes free tokens or coins to the crypto community. Have a wallet ready and understand how the different types of airdrops work.
In this guide, traders will learn everything they need to know to get started receiving cryptocurrency airdrops through the blockchain.
What is an airdrop?
An airdrop in cryptocurrency is a popular marketing tactic used by crypto projects, which involves distributing free tokens to attract attention, build communities, or reward long-term holders.
How do cryptocurrency airdrops work?
Airdrops can be performed for a variety of reasons, ranging from promoting a new cryptocurrency to rewarding users of a decentralised application (DApp) and more. The process of receiving airdrops, however, is typically quite similar.
Most crypto airdrops happen automatically by sending tokens to public wallet addresses of users of a specific blockchain or DApp up to a certain cut-off date.
For example, anyone who has ever connected their Ethereum wallet to Uniswap before September 1 2020, received a UNI token airdrop when the popular decentralised exchange launched its governance token.
Alternatively, some crypto airdrops involve individuals carrying out special tasks like retweeting and following a Twitter account, joining a Telegram or Discord community, referring people to a website, etc. to spread awareness about the project. Other airdrops are a way of rewarding active participants in a project or long-term “HODLer” of a coin.
Typically, a small quantity of a token’s supply is distributed to a large number of people during a coin airdrop. Some airdropped coins end up rising in value, creating substantial “free” investment returns for holders, while other airdropped cryptocurrencies trend down towards zero only months after the airdrop.
As such, it’s important to note that not all airdrops are created equal. Just because free tokens are on offer doesn’t mean traders have to partake in every single airdrop.
What are the different types of airdrops?
There are different kinds of airdrops in the crypto market and how they function is dependent on the purpose of the airdrops. Please find the main types of airdrops below:
Standard airdrop
Users are only required to sign up and input their wallet address to receive free tokens. Anyone with an internet connection and a cryptocurrency wallet can receive this airdrop.
Exclusive airdrop
Exclusive airdrops are reserved for people who have transacted or participated in a crypto project for some time. An example is the 1inch airdrop of December 2020.
Bounty airdrop
Bounty airdrops require people to carry out certain tasks such as creating blog posts, joining a Telegram community, or promoting a brand on social media before becoming eligible for participation.
HODLers airdrop
This type of airdrop is given to HODLers of a specific token. These airdrops are often done unannounced as users might just receive tokens from a new project launching on a blockchain. Ethereum, EOS, and TRX holders have benefited from this type of airdrop in the past.
Hardfork airdrop
Hardfork airdrops occur when holders of a coin are airdropped an equivalent of their holdings from a forked blockchain. An example would be Bitcoin holders receiving Bitcoin Gold (BTG) when this fork took place in October 2017.
How to receive crypto airdrops
Receiving airdrops is surprisingly simple once traders have a crypto wallet setup. While airdrops differ somewhat, the general steps to follow are:
1. Open a crypto wallet
All cryptocurrencies are accessed through a cryptocurrency wallet. Hence, to receive airdrops, traders must download one and set it up. The majority of crypto projects and applications run on the Ethereum or Binance Smart Chain, meaning ERC-20 and BEP-20 compliant wallets are needed to effectively participate in their airdrops.
2. Access to a Twitter or Telegram account
Many projects require people to perform tasks on Telegram or Twitter to qualify for an airdrop. Without having one of these social media accounts, traders may not be able to participate in the airdrop.
Recommended reading: What is a stablecoin?
Hard forks vs airdrops
Hard forks and airdrops are sometimes confused because of their similarities.
A hard fork is a split in a cryptocurrency's blockchain, which usually occurs when a change is made to the protocol governing the digital currency or to create another version of an existing currency. This split creates two blockchains: the original and the fork. Conversely, an airdrop is performed to distribute free crypto tokens for a specific purpose.
The similarity here is that when a hard fork occurs, holders of that cryptocurrency receive airdrops of the forked blockchain equivalent to their holdings of the original chain’s tokens.
Bitcoin, for example, has been hard forked many times, which explains why there are a handful of Bitcoin-like digital currencies in the market. Examples of Bitcoin forks include Bitcoin Cash (BCH), Bitcoin Gold (BTG), and Bitcoin SV (BSV).
Why do new cryptocurrencies run airdrops?
As we have mentioned earlier, crypto projects conduct airdrops for different purposes. Although crypto users essentially receive “free money,” the main beneficiaries from airdrops are the crypto projects conducting them.
Below are a few reasons why airdrops are carried out:
Public awareness
There are over 9,000 crypto projects, and what better way to stand out than by distributing free tokens? Most crypto projects give airdrops to people for completing menial tasks like following their Twitter accounts and retweeting their posts. Another way to drive awareness is to offer referral bonuses to people who bring more participants into the airdrop.
Attracting investors
Some crypto projects conduct airdrops to attract investors to their projects. Since ICOs have become a target for regulators, most projects use awareness from the hype caused by their airdrops to trend on Twitter, Reddit, and other social media platforms.
While most people cash out on their airdrops immediately, some move on to become active community members. And big investors are mostly interested in projects with active communities, which is why airdrops can help crypto ventures to gain access to funding.
Decentralise a token's total supply
Decentralisation has been one of the core values for crypto enthusiasts but often, when new cryptocurrencies are launched, large-scale investors use this opportunity to store up large chunks of a cryptocurrency’s total supply for themselves.
This might enable them to influence the market price and vote for change that benefits them, especially when it's a governance token or a Proof of Stake (PoS) coin. Crypto projects conduct airdrops to evenly distribute their tokens amongst token holders to combat this issue.
Reward long-term HODLers
Since airdrops are free, many receivers are in a hurry to sell them off and see gains. This attitude affects the long-term sustainability of a project and might even discourage the need for airdrops.
However, crypto projects have devised a method for solving this by rewarding long-term holders of their digital token with airdrops. This motivates people to hold their coins with the hope of receiving additional tokens in the future. Traders don't have to register for such airdrops as they are distributed via a snapshot of a coin's blockchain.
Examples of crypto airdrops
Hundreds, if not thousands of airdrops, have taken place in the global crypto markets in the last few years. Here are a few that stood out:
Bitcoin Cash
Often referred to as the most controversial airdrop in history, Bitcoin Cash (BCH) hard-forked from the Bitcoin blockchain and gave all bitcoin hodlers an airdrop of their equivalent holdings in BCH.
The fork that happened on August 1, 2017, saw BCH trading for $240. On December 20 of that same year, BCH hit an all-time high of $3,785.82 but has since retraced to below $1,000 at the time of writing. Bitcoin (BTC) went on to exceed $60,000 per coin in early 2021.
Uniswap
Uniswap is a decentralised exchange where users provide liquidity and trade Ethereum-based tokens in a trustless manner. The exchange decided to reward anyone who has conducted a transaction on it before Sept 1, 2020, with an airdrop of 400 UNI.
The token traded between $2 - $4 at the time and many quickly sold it and made a nice profit. But during the crypto market bull run earlier this year, UNI skyrocketed in value, and those who were patiently hodling made significant profit as 1 UNI token traded for $30. This means everyone who held their tokens made $12,000.
BitTorrent
BitTorrent (BTT) is a TRC-10 utility token on the Tron blockchain. BTT initially organised an airdrop for all TRX hodlers that was supposed to run from February 2019 until 2025. The airdrop was stopped after 16 successful rounds, which saw 25.987 billion BTT distributed to TRX hodlers.
The BTT team stated that the airdrop was a success as the users of BitTorrent speed grew to over 12 million. BTT currently trades at $0.0039 at the time of writing.
1inch
1inch, a decentralised exchange like Uniswap, held an airdrop of its utility and governance token in December 2020. 90 million 1inch tokens were airdropped to over 55,000 addresses that made a minimum of four trades or traded over $20 before September 2020.
In February this year, another airdrop was distributed to Uniswap traders who have not swapped tokens in the 1inch exchange before. Six million 1inch tokens were distributed to traders who have made at least three trades in 2021.
What is the difference between an ICO and an airdrop?
Initial coin offerings (ICOs) are a method of raising capital for new crypto projects. It involves paying a sum in cryptocurrencies (typically ETH) or fiat currency to receive a portion of the project's tokens. Some of the successful ICOs of all time were EOS, Tezos, and Filecoin.
Airdrops, on the other hand, do not require people to pay money to receive tokens because they are free and primarily used to drive brand awareness or to reward users. Some ICOs even use airdrops to promote awareness before launching.
In essence, the major difference between both is that traders pay money (crypto or fiat) for receiving tokens in an ICO, while for an airdrop, traders pay nothing. Airdrops that require payment of any form are almost certainly scams.
Where to find crypto airdrops?
Staying updated on the latest airdrops isn't really hard when the right resources are available.
Twitter and Telegram have been the discussion hub of most crypto enthusiasts. Developers of new crypto projects leverage these platforms for releasing information about upcoming airdrops.
Some Telegram channels and Twitter accounts are dedicated to tracking and providing users with the latest airdrops, while websites have also been developed for this purpose.
Crypto airdrop scams
Like every money-related activity, scams are bound to happen. To play it safe while claiming airdrops, users should be aware of these scams:
Pump and dump
Pump and dumps are some of the most popular scams in the crypto markets. Pump and dump scams typically involve the developers of a coin creating hype on social media through airdrops and advertising for it to be listed in an exchange. Once the price pumps (i.e. increases sharply), the developers sell off all their tokens for a profit and abandon the project.
This is why most people sell their airdrops immediately after they receive them. One way to avoid such scams is to do thorough research about a project, looking at the tokenomics, project whitepaper and developers’ activities.
Private key scams
Airdrops that require the provision of the wallet's private key before receiving tokens are almost certainly scams and should always be avoided. Private keys are like the PINs of the wallet, and revealing them in an airdrop means giving people access to take coins. Legit airdrops will only require users to provide a public wallet address and nothing else.
Dusting and phishing attacks
Scammers have targeted airdrops as another way of performing dusting and phishing attacks. These types of scams require people to register with an email address and provide sensitive information for a small amount of tokens. This information is then used to reveal the user of a particular address to extort them. The best way to avoid these scams is to have a separate wallet just for airdrops and to never share personal information when using a crypto wallet.
We hope that this guide will help on the journey to buying, owning, and trading cryptocurrencies. To start trading cryptocurrency CFDs with Axi today, click here.
