The ever emergence of cryptocurrencies has been making traders and investors challenging to keep up with all the current projects. Several crypto projects come with airdrops to raise awareness and differentiate themselves. But what is a cryptocurrency airdrop? What are the pluses and minuses of an airdrop? Or is it legit? Scroll down to learn more.
What is a Cryptocurrency Airdrop?
What does airdrop mean in crypto? Generally, it’s a marketing approach employed by cryptocurrency companies to make crypto traders and investors aware of a new currency. It’s also conducted to promote ownership of the brand new nft or cryptocurrency.
The airdrop procedure includes sending a small number of tokens or coins to the recipient's wallet addresses. Some give out the new currency for free. In contrast, others require users to complete a specific promotional activity like reposting a tweet made by the maker of the new cryptocurrency before claiming the new coins.
Related Article: Token vs Coin, Mechanisms and Differences
What are the Advantages and Disadvantages of Cryptocurrency Airdrop?
The competition among new crypto startups is fierce that an airdrop becomes a way out for a company to stand among the rest. It, of course, raises the question of is airdrop safe?
Crypto airdrops might allow one to have a diverse crypto portfolio even without acquiring digital assets. Indeed, that would only succeed if a proper marketing approach was conducted. According to the advisory board of CoinDesk, Michael J. Casey, a currency will end up valueless if it’s not widely utilized. People should put effort into promoting it.
However, the growing popularity of crypto airdrops is not free from concerns. There have even been warnings from prominent figures in this virtual currency industry. Bitcoin Advisory’s founder, Pierre Rochard, mentioned that crypto airdrops might tend to be pump-and-dump schemes.
A pump-and-dump scheme is when fraudsters spread false information to encourage people to use a new currency. The owners of the cryptos will later increase the currency's value to obtain a quick profit. Through his Twitter account, Rochard shared his views regarding airdrop scams everyone needs to watch out for, such as follow:
- Instantly mine the new token or coin for yourself and your pals before its public launch.
- Trade the mined coin or token with others to increase the value.
- Make a giveaway of the new coin or token to entice regular investors.
- Retail will then dump the token or coin.
Types of Cryptocurrency Airdrop
You have by now understood the answer to what cryptocurrency airdrop is. It's time for you to familiarize yourself with crypto airdrops. Below are the most common types you need to know.
1. Standard Airdrop
A standard airdrop is open for everyone. A certain amount of new currency will be transferred to the crypto wallet holders in standard crypto airdrops. It is a way to elevate the brand and boost widespread usage during the initial offering. To be eligible for the free coin or token, users usually need to create an account with the brand-new project. They also need to provide their wallet address to receive the free currency during the event.
2. Exclusive Airdrop
As the name indicates, exclusive airdrops are only reserved for loyal followers of certain aggregators. These airdrop websites typically share news regarding some brand new cryptocurrency projects and the upcoming related events at their disposal.
3. Bounty Airdrop
Bounty airdrops are a crypto marketing strategy where people must be involved in certain promotional activities in order to be eligible for new coins or tokens. The activities may include making a social media post about the new project, signing up for an email newsletter of the project, or joining a provided forum to further discuss the project or participate in any related event.
Compared to standard airdrops, the bounty ones may require some work. Fortunately, the activities are not too demanding, for it's also regarded as a method to educate people about the new currency.
4. Holder Airdrop
Holder airdrops are eligible for users who hold another currency in their wallets. Usually, people are required to provide a snapshot of their crypto holdings on a given date to accept an airdrop.
For instance, as a gesture of appreciation to the Bitcoin community, the officials of Stellar revealed a proposal to airdrop lumen (XLM) worth around $19 billion to the existing Bitcoin (BTC) holders two years after the project was started. The holders can receive the Stellar airdrop (XLM) by verifying their Bitcoin holdings.
After perusing through the list of airdrop types above, maybe the question "can you make money from airdrop?” pops up in your mind right now. Airdrops allow you to generate some money while also getting in on the new platform’s ground floor.
Because some of the new currencies are sent for free by the owners, not all those airdropped coins or tokens are simply free money. As previously mentioned, airdrops might be worthless when no proper promotional methods are conducted.
How Does It Differ from Hard Fork?
The primary objective of airdrops is to increase the usage of a new token or coin. While hard forks are similar to airdrops, both are essentially different events. To put it simply, a hard fork occurs when one single cryptocurrency is divided into two. It may happen when there is a disagreement in the blockchain’s network regarding the existing functionality. Thus, a fork will occur since some miners disagree with the changes. The new chain’s verifying software will later be updated. Also, the users may receive the latest cryptocurrency at the same amount after that.
To make it easier to understand, let's see the example of the hard fork that occurred in the Bitcoin network in 2017, resulting in Bitcoin Cash. People who owned Bitcoin in a private wallet or on a supported platform on 1st August 2017 were entitled to receive Bitcoin Cash in the same amount as their Bitcoin holdings.
So, what is cryptocurrency airdrop? From the elaboration above, a crypto airdrop can be defined as a marketing method conducted by the owners of the new cryptocurrencies to make people aware of the new coins or tokens. Some companies offer their currency for free, while others require users to perform some promotional activities. While airdrops can help you make some money, it doesn’t imply that it’s free money. Also, it’s advised to always watch out for scams.