What is an airdrop?
An airdrop may evoke images of military jets airdropping supplies to civilians or military forces. While it’s different in the cryptocurrency world, the concept is the same. A cryptocurrency airdrop involves “dropping” free virtual currency tokens to digital currency wallets. The free coins are meant to promote awareness about the cryptocurrency project. In some cases, the crypto project requires those wanting the free coins to first spread the word on social media by retweeting.
The blockchain project issuing the coins chooses the target beneficiaries. Mostly, active wallets of major cryptocurrencies such as Bitcoin and Ethereum receive the coins. Another criterion used, is having a set minimum amount of cryptocurrencies in the target wallet.
In this post, we’ll comprehensively discuss what is an airdrop, types of airdrops and its pros and cons is.
What is an airdrop?
Airdrops can either be a surprise or announced. Surprise free coins are distributed without prior notification from the distributing blockchain project. This approach is common with established blockchain projects. Announced airdrops are common with startups that need to get the community engaged before receiving free coins.
Free crypto airdrops in 2022
Benefits of an airdrop
Through an airdrop, free coins are used by established blockchain-based companies as a token of appreciation to their esteemed customers. These companies range from cryptocurrency exchanges such as Binance and cryptocurrency wallet service providers.
Ignites a conversation within the crypto community
When many wallet holders detect new coins in their wallets, a conversation is ignited on crypto and social forums as to the origin of the tokens. Consequently, the company behind the free coins receives exposure.
Generating marketing leads
Where the airdrops are accompanied by small tasks such as filling online forms, the team behind the airdrop collects valuable information in exchange for free coins. The data collected can later be turned into leads and subsequently, sales.
Disadvantages of an airdrop
Although airdrops have been used as a gesture of appreciation and marketing, they have also been used for malicious gains. For example, the firm behind the airdrop can provide free coins to increase trading and activity around the coin with the sole reason to dump their coins once they reach a target price. This practice is known as a pump and dump. Some of the free coins may not have a substantial value or even be listed on any virtual currency exchange. This leaves its holders with worthless free coins.
What is an airdrop: Conclusion
When a blockchain platform is split into two separate chains during a hard fork, the new chain’s free coins may be airdropped to those left on the old chain. Airdrops are a good way to spread the word about an upcoming or recently launched cryptocurrency. However, when offered in jurisdictions that track cryptocurrency taxes like the United States, they are taxable. Even with an attractive “free” label, there’s always a possibility to hold worthless free coins.