24 August 2022

What is a Crypto Airdrop?

Airdrops are a popular way to distribute tokens, but they don't come without risks. Find out what an airdrop is and how to protect yourself from scams.

What is a Crypto Airdrop?


    How Does It Work?
    Why Do Airdrops Happen?
    What Are the Benefits of Participating in Airdrops?
    What Are the Risks of Participating in Airdrops?
    How to Protect Yourself

An airdrop is a crypto marketing or business strategy where a cryptocurrency project distributes free tokens to its community, typically to gain public interest or distribute the token and related services. A cryptocurrency airdrop can be for any blockchain project to increase community participation and raise awareness.

How Does It Work?

A crypto project may airdrop coins in several ways. The most common airdrop method is for a project to simply give away a certain number of free tokens to its community members. For example, a new cryptocurrency project may airdrop 1,000 free tokens to each of its Telegram group members.

A crypto project may also airdrop tokens in exchange for tasks such as social media promotion or signing up for a project's newsletter. Here, a crypto project may require participants to follow a project's Twitter page and retweet a specific post. In return, they would receive a certain number of free tokens.

Another standard airdrop method is the snapshot airdrop. For a snapshot airdrop, a project takes a "snapshot" of its blockchain at a specific block height. From this snapshot, the project can determine which addresses hold a certain number of tokens and then airdrop a corresponding amount of tokens to those addresses. A famous snapshot airdrop was the Bitcoin Cash airdrop which airdropped a certain amount of Bitcoin Cash to all addresses that held Bitcoin at the time of the snapshot. For example, after the Bitcoin-Bitcoin Cash fork, the Bitcoin Cash team gave all addresses that held Bitcoin a 1:1 airdrop of Bitcoin Cash. So, if you had 10 Bitcoin in your wallet at the time of the fork, you would also receive 10 Bitcoin Cash after the airdrop.

Why Do Airdrops Happen?

Airdrops are a way for a project to increase its community participation and awareness. By giving away free tokens, a project can incentivize people to learn more about the project and get involved in its development. In the case of a snapshot airdrop, a project can bootstrap its ecosystem by airdropping tokens to a large number of addresses. Airdrops can be a very effective tool for crypto projects seeking involvement or a broader user base.

From a more equitable perspective, airdrops can help to decentralize a project's token distribution. As an equal opportunity strategy that does not discriminate by any qualitative or quantitative metric, this is one way a project can ensure its tokens are pretty distributed among as many participants as possible.

What Are the Benefits of Participating in Airdrops?

For airdrop participants, the benefit is obvious—free tokens. If a project airdrops a significant number of tokens, it can be a great way to earn some free cryptocurrency. However, even if a project only airdrops a small number of tokens, it can still be a great way to get involved with a new project and learn more about it. In many cases, airdropping is a better alternative to purchasing ICO tokens.

Another benefit to airdrop participants is that participating in airdrops will teach you how crypto projects work. When you sign up for an airdrop, you may need to perform actions such as downloading a wallet or creating a transaction on the blockchain, all things that require a basic understanding of crypto. Participating in airdrops lets you discover how some cryptocurrencies are made, how projects work, and how to store and use your tokens.

What Are the Risks of Participating in Airdrops?

The crypto space is littered with fraud, deception, and scams. While airdrops are a great way to earn free tokens, they also come with great risk. Some airdrops require participants to provide personal information such as their email address or social media handles. Scammers can then use this information to target airdrop participants with phishing attacks or other fraudulent activity.

A common airdrop scam is when a project asks participants to send a small amount of cryptocurrency to a specific address to receive a larger number of tokens in return. Unfortunately, when someone sends cryptocurrency to the address, they never receive any tokens, and the scammers make off with the crypto. This scam has increased in various iterations across Twitter, Telegram, and other social media platforms. In more convincing cases, hackers will hack into a public figure's account and post the scam airdrop from their account to add a veneer of legitimacy.

A good heuristic: if an airdrop is asking you to send crypto to receive more crypto, it's almost certainly a scam. If it sounds too good to be true—it is.

Another scam is an airdrop pump-and-dump. In this case, a group of scammers will airdrop many tokens to a select group of people. The scammers then use social media platforms such as Telegram or Twitter to hype up the airdropped project to drive up the token's price. Once the price has reached a certain point, the scammers sell their tokens en masse, causing the price to crash. Those who bought into the hype at the top are left holding a bag of worthless tokens.

How to Protect Yourself

While legitimate, well-intentioned projects disseminate coins to community members via airdrops, there are more scams and malicious airdrops than there are legitimate ones. It's hard to overstate how much junk is out there and how many projects aren't worth the trouble, but if you want to dip your toes, here are a couple of tips:

  • Do your research: a good airdrop will have a well-designed website, a clear roadmap, and a team that is easy to get in touch with (even though these by no means guarantee legitimacy). If a project's website looks like it was made in five minutes by a 12-year-old in Microsoft Paint, it's probably a scam.
  • Check for red flags: if a project asks you to send crypto to receive more crypto, it's a scam. Also, be wary of airdrops that require you to provide personal information such as your email, social security number, or credit card number.
  • Look for anyone of stature endorsing the airdrop: a well-known figure in the crypto space tweeting about an airdrop could mean that it's legitimate. However, as we've discussed, scammers are also known to hack into public figures' accounts and post about airdrops, so take this with a grain of salt.
Please be aware that: Cryptocurrencies are unregulated in the UK; Cryptocurrencies are not protected under Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS); Profits may be subject to capital gains tax; The value of investments can go down as well as up.

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