If you’ve ever wondered what airdrops are and how you can get hold of some free tokens, you’ve come to the right place! Today, we take a closer look at how companies choose to spend their resources by giving away digital assets. Why do they do it, and how can you avoid airdrop scams? Let’s […]
If you’ve ever wondered what airdrops are and how you can get hold of some free tokens, you’ve come to the right place!
Today, we take a closer look at how companies choose to spend their resources by giving away digital assets. Why do they do it, and how can you avoid airdrop scams? Let’s find out!
What is a Cryptocurrency Airdrop?
The term “airdrop” originates from aviation. Airdropping is the practice through which airplanes drop supplies to an isolated community. For example, if a city has been devastated by a flood or a hurricane, and terrestrial access is blocked, the authorities will drop food, water, and other goods to the stranded people inside from the air.
In cryptocurrency, an airdrop is a marketing practice through which companies send free coins or tokens to wallet addresses to increase the popularity of a specific digital asset.
Why Companies Do Cryptocurrency Airdrops
So far, the concept of receiving free tokens in your wallet seems fascinating. But the question remains. Why would companies airdrop cryptocurrency free of charge? It couldn’t be because of their philanthropic nature.
In fact, there are several reasons for which companies airdrop free tokens, such as:
- Increasing popularity
- Foraying the market
- Gathering funds
- Rewarding users
- Enhancing token circulation
- Hard Forks
Let’s break down each of them to better understand the mechanism behind cryptocurrency airdrops!
- Increasing popularity
Until recently, most companies would use Initial Coin Offerings (ICOs) to raise awareness over cryptocurrencies. The ICO was their favorite brand-boosting tool for soon-to-be-released tokens. However, in 2019, ICOs raised a little over $118 million, which was 58 times less than they managed to attract in 2018.
The forecast for ICOs in 2020 does not look good either. So, airdropping free tokens seems to be a more effective marketing weapon for increasing a crypto’s popularity.
Also, planning and running an ICO is much more time-consuming than simply sending a few free tokens to potentially interested investors.
- Foraying the market
Cryptocurrency enthusiasts that wish to become eligible for airdrops have to share some of their information with the generous company at the other end of the donation. Most of this data is harmless for your privacy but priceless for their marketing department. It usually includes one or more of the following details:
- Your email address
- Your approval to join the company’s Telegram group
- Your approval to follow the company on Twitter
- Your Ethereum address
The issuing company can use this information to create a virtual profile of their potential investor. They may also use it to understand buyer behavior and preferences to tweak their marketing strategy accordingly.
- Gathering Funds
Airdrops can provide up-and-coming companies with precious financial support even if they lack investors.
Let’s take the hypothetical case of a company creating a DApp on the Ethereum blockchain. Their application uses XYZ tokens, each valued at $0.10. The complete issuance is 100 million tokens, so the total market cap will value $10 million.
If the company would airdrop 20 million tokens, it would lose $2 million of its capital. However, the publicity that the airdrops would bring through social media and other cryptocurrency channels should increase the value of the XYZ token on the market. Even if it increases by only $0.04, the total value of your tokens will also rise to (0.04 * 80) = $11.2 million. So, the company would enjoy a $1.2 million profit without making a single sale.
- Rewarding Users
Most cryptocurrency investors are on a continuous hunt for the “next Bitcoin,” so they tend to exchange the digital assets in their portfolio frequently.
Companies can also use airdrops to inspire or strengthen loyalty in their users. They can give away free tokens to reward those investors that keep that specific crypto in their wallet the longest. This way, the owners have the necessary motivation to buy more of those tokens and hold onto them.
- Enhancing Token Circulation
A whale takeover is one of the biggest fears of ICO-running companies. Whales are rich investors that buy a substantial amount of the tokens, leaving very few available for the users that have limited buying power.
Whale takeovers result in the dividing of most of the tokens between a handful of owners. While the practice is not illegal, it takes away the “decentralized” attribute from the cryptocurrency.
To avoid whales from invading an ICO, companies can enhance token circulation through airdrops. This way, they can maintain a certain level of control over the distribution at an early phase of the release.
- Hard Forks
A hard fork is the update of a blockchain that makes it incompatible for old users who do not follow the change. For example, if a chain goes through a hard fork, the newly-issued tokens will not be available to users who remain on the old chain. Also, the old tokens will not be compatible with the new version of the chain.
Companies may use the airdrop method to send the new tokens freely to the users in the event of a hard fork.
How to Benefit from Airdrops
If you follow the cryptocurrency market and you connect to the social media channels that link to it, you will notice that airdrop opportunities appear all the time. To benefit from airdropping free tokens, you must have 3 prerequisites:
- Own a cryptocurrency wallet
- Have the base tokens
- Stay alert
Let’s take a closer look at these essential conditions for receiving cryptocurrency airdrops!
- Own a Cryptocurrency Wallet
The first condition is straightforward. If you want to receive free digital assets, you better have a digital wallet to store them. Unlike real-world wallets, a cryptocurrency wallet only stores the private keys that give you access to your virtual bounty.
Here are a few examples of highly-secure digital wallets where you can receive free tokens:
- Have the Base Tokens
Most of the new cryptocurrencies available on the market today are built on top of one of these blockchains:
The corresponding token for each of these chains is also known as a base token, and they are
Companies send free tokens to users according to the number of base tokens that they have. So, if you want to be eligible for an airdrop, you must ensure that you already have the base token that corresponds to the free token beforehand.
- Stay alert
If you already have a digital wallet and at least one base coin in it, all you need to do now is to stay alert and constantly on the lookout for airdrop offers.
- Follow social media accounts from relevant companies and experts from the industry
- Join Telegram groups that deal with airdrops news
- Follow cryptocurrency websites
Subscribe to the relevant and trustworthy channels from these categories and you may have a good chance at being one of the first in line to receive an airdrop.
How Many Types of Airdrops Are There?
You may be eligible for receiving free tokens, but to apply for them, you may have to go an extra step depending on the type of cryptocurrency airdrop that a company makes available.
Here are the most common types of airdrops that you may encounter:
- Standard Airdrop
- Bounty Airdrop
- Holder Airdrop
- Hardfork Airdrop
- Exclusive Airdrop
You can try your hand at most of them before you find the ones that best suit your investment strategy in the cryptocurrency market. Here is a short breakdown of each of them:
- Standard Airdrop
This one is the typical airdrop for which you need the minimal prerequisites. Companies usually ask for your name and email, and then all you have to do is wait for the free tokens to land in your wallet.
- Bounty Airdrop
In this case, you may have to sweat a bit more to get your hands on the free cryptos. A company may airdrop you some tokens if you advertise their project on your social media channels. Generally, a single tweet will do.
- Holder Airdrop
To qualify for this type of airdrop, you must already have a particular token in your wallet. So, if a company decides to give away free EOS tokens, your wallet should already contain a few EOS beforehand.
- Hardfork Airdrop
In this scenario, if you are the holder of a coin going through a hard fork, you will be eligible for airdrops of the new tokens as well.
- Exclusive Airdrop
This type of airdrop is rare and mostly reserved for loyal/VIP members of a community or a project. As the name suggests, you will be in a select company of receivers if a company decides to reward your allegiance with free tokens.
How to Avoid Airdrop Scams
Receiving free tokens through airdrops feels great! However, the thrill of a workless gain comes at a cost, which you may have to pay sooner or later. If you do it wisely, most of the time, the price consists of sharing some of your data for marketing surveys, adhering to a social media advertising campaign, or mere loyalty.
The biggest danger of applying for free token giveaways is the abundance of cryptocurrency airdrop scams out there. Some of the most common ones include:
- Dump Airdrops
- Private Key Scams
- Phishing Scams
- Bait and Switch Scams
Where there is money to invest, there is always room for people to take advantage of the most gullible investors that show up, so let’s take a closer look at these airdrop scams and how to avoid them!
Dump Airdrops
With the expansion of the cryptocurrency market, the cases of dump airdrop scams have increased significantly. The process is simple to understand for seasoned investors but almost unnoticeable to entry-level crypto buyers.
Generally, a dump airdrop scam starts with a company generating massive hype on social media about a certain token. They also send a substantial amount of tokens freely to users.
As the interest in it grows the price of the token will grow. The users who have received the free tokens start trading them on exchanges. At that point, the developing company dumps all their tokens and abandons the project. Simply put, they take all the investors’ money and disappear with it while the token owners are left behind to trade a value-less asset.
To avoid dump airdrops, you must follow these simple steps:
- Conduct thorough research of the development team behind the airdrop
- Ensure that the developers have a trustworthy history in the industry
- Analyze carefully the whitepaper and identify the benefits that it brings to the crypto ecosystem
- Understand if the project needs a token or not
Private Key Scams
Some very shady organizations out there prey on the most naive and less experienced crypto investors on their market. Their strategy is simple, and it implies asking for a wallet holder’s private key in exchange for a substantial, once-in-a-lifetime airdrop offer.
Similar to the first two rules of the Fight Club movie, the golden rule of cryptocurrency is that you never, ever, under any circumstances talk about (divulge) your private key. It is that simple to avoid private key scams correlated with free token airdrops.
Phishing Scams
As we’ve mentioned earlier, one of the prerequisites for airdrop eligibility is being alert and staying in touch with the crypto community. However, by doing so, you share some of your data, such as your name, email, your Telegram, and Twitter handles, etc.
Some ill-intended marketers may use this data to contact you with what may look like airdrop offers. In reality, they are trying to phish you for secret information, such as your email password or your social media login details. Your best choice is to never share personal information that could endanger your privacy or the security of your accounts in any way.
Bait and Switch Scams
This type of airdrop scam is almost untraceable by the unlearned eye. You may notice it while applying for an airdrop offer and the company asks you to join a Telegram group or a social media community as a condition for your eligibility.
While these scams will not take any money out of your pocket, they will waste your time. Most likely, there is no airdrop offer on the table. Instead, the scammers are looking to get some referral credit for a larger scam that they are preparing behind the scenes.
Cryptocurrency Airdrops – The Bottom Line
A cryptocurrency airdrop is a highly effective tool in the hands of professional, trustworthy marketers and developers. It can help a company raise funds, increase awareness, and build loyalty for a growing project.
Being on the receiving end of an airdrop can result in substantial gains for your portfolio in the long run, especially if the project turns out to be a successful one. Even if it doesn’t, you at least get a few free tokens that you can exchange and move some of your assets around, depending on the situation.
The most important thing to remember when applying for airdrops is security. Do your due diligence and thoroughly research the magnanimous company that wants to send you free tokens before you open your wallet.
