Cryptocurrencies have grown in popularity however to newcomers, the field can be very confusing to understand the key terminology. Airdrops are an integral part of the crypto world that can be very beneficial once they are understood.
Summary:
- Crypto airdrops are tokens that can be traded or held as investments.
- Airdrops are used for marketing, decentralisation and rewarding loyalty.
- Airdrops can be standard, holder, exclusive or bounty.
- Airdrops are announced, distributed, then held or traded.
- There have been many successful airdrops that have both created profit and been useful tools of advertising for the cryptocurrency.
- There are pros and cons to using airdrops but ultimately, they can be a beneficial way to earn passive income.
- Make sure to avoid scams and pay tax on the profits if it is required.
What are Crypto Airdrops?
Crypto airdrops refer to the process where crypto token creators deliver their tokens to wallet addresses free of charge. These airdrops usually serve as a marketing strategy, the aim being to spread awareness for a new cryptocurrency or a reward to loyal customers. The tokens that are received can be a valuable addition to your crypto portfolio, these can be traded or held as investments.
Why do Companies do Airdrops?
Crypto airdrops seem too good to be true as companies hardly ever give away things for free, especially valuable tokens. Here are several reasons:
- Marketing: Airdrops are a good tool to advertise the new cryptocurrency. As people get naturally excited about free items, this tends to generate a buzz around the new token and drives up the price of the currency.
- Decentralisation: by distributing tokens widely, companies can avoid a concentration of power and ensure that their cryptocurrency remains decentralised.
- Rewarding loyalty: existing users who hold a particular cryptocurrency in their wallet may receive airdrops as a reward for their loyalty, incentivising them to hold onto their tokens and reducing market volatility.
From a customer’s perspective, airdrops can be a lucrative opportunity to acquire tokens at no cost. These tokens can then be held or traded or sold for a profit, this can potentially serve as a source of passive income.
In addition, airdrops can provide users with the chance to explore new projects and become early adopters of new and upcoming cryptocurrencies.
Types of Crypto Airdrops:
Understanding the different types of crypto airdrops can help users to identify the ones which are most relevant to them. Generally, these airdrops can be categorised into four categories:
- Standard Airdrops: tokens are distributed to users who hold a specific cryptocurrency. For example, if a new token is built on the Ethereum blockchain, the creators may airdrop tokens to all users who hold Ethereum (ETH) in their wallets.
- Holder Airdrops: this type of airdrop rewards holders of a certain coin, regardless of the platform. The airdrop serves as an incentive for users to hold onto their coins, thereby maintaining or even increasing their value.
- Exclusive Airdrops: available only to a selective group of people, such as subscribers or community members. To qualify, users need to be part of that community.
- Bounty Airdrops: designed to reward users for completing specific tasks, like sharing social media posts or referring a friend. Upon completing the task, the user can receive tokens as a reward.
Each type of airdrop has its own rules and eligibility, so it is essential that you always read and understand the specifics before participating within these schemes.
How do Crypto Airdrops work?
The process of releasing and developing an airdrop generally follows these steps, however they do vary depending on the company and type of airdrops:
- Announcement: companies announce airdrops on their social media channels or via newsletters.
- User action: depending on the type of airdrop, users might need to perform specific actions. For holder airdrops, you shall have to hold the required cryptocurrency in your wallet. For standard airdrops, you might need to complete a form or signup for a newsletter.
- Distribution: after the airdrop, the tokens are automatically deposited into the eligible wallets.
How to participate in Airdrops?
Most airdrops require minimal effort to participate. Here are some general steps:
- Stay updated: follow your favourite crypto companies on social media, subscribe to their newsletter and join their communities to stay updated about potential airdrops. We also try to keep our members informed about recent airdrop activity in our channels.
- Hold cryptocurrencies: holding a diverse range of cryptocurrencies makes you eligible for more airdrops.
- Complete tasks: some airdrops require users to complete specific tasks like sharing posts on social media or referring friends.
- Check status: once all the necessary steps have been completed, check the airdrop leaderboard status to confirm your participation.
What to do after receiving an Airdrop?
After receiving an airdrop, you have several options:
- Hold: you can hold onto the tokens and hope their value increases over time.
- Trade: you can trade the tokens on a cryptocurrency exchange.
- Research: conduct in-depth research about the token to decide whether to invest more or sell.
Successful Airdrops in Crypto History:
Several airdrops have made headlines for their unprecedented success, here are some examples:
- Uniswap (UNI) – initially worth around $1200, the value has since skyrocketed since its release in 2020.
- Stellar Lumens (XLM) – when Stellar Development Foundation partnered with Blockchain.com for the largest airdrop in history, the users received free tokens. In total they were worth around $125 million.
These airdrops have rewarded the recipients but also raised awareness about the projects which has contributed to their long-term success.
Pros and Cons of Crypto Airdrops
Pros:
Free tokens: users can expand their crypto portfolio without spending money.
Discovering new projects: Airdrops allow users to learn about and participate in new blockchain projects.
Potential for Profit: If the airdropped tokens increase in value, users can profit by trading or selling them.
Cons:
Scam risks: not all airdrops are genuine. Some are planned by scammers to trick people into giving away personal information or access to crypto wallets.
Tax implications: depending on the country’s regulations, airdropped tokens might be considered taxable income. Make sure that you follow the regulations of your country.
Token value: not all airdrops turn out to be valuable. Some of these tokens may never take off and remain worthless.
How to Avoid Airdrop Scams?
It’s important to protect yourself from scams. Here are some tips to ensure that you are not impacted:
- Don’t share your private keys. No legitimate airdrop will ever ask for your private key and if they do it is most likely a scam.
- Verify the source of the airdrop. Always cross-check the source of the airdrop. Scammers often impersonate crypto projects.
- Research the project as airdrops often come from well-advertised projects with clear, distinguishable elements.
Crypto Airdrop Taxes:
Something that is often overlooked within crypto airdrops is their tax implications. While airdrops might seem like free money, there are many tax jurisdictions which categorise them as income.
When receiving an airdrop, you are usually taxed by the market value of the tokens on the day that you receive them. The best practice is to consult a tax professional to understand the tax implications and your reporting obligations.
Frequently Asked Questions:
Q1. What is the purpose of crypto airdrops?
Crypto airdrops serve multiple purposes, including the marketing for new projects, rewarding loyal users and achieving a decentralised network.
Q.2 How do I find out about the upcoming crypto airdrops?
Research is always vital; however, we’ll always try and keep our members updated on anything we think might be worth something!
Q.3 Are crypto airdrops free money?
While crypto airdrops provide tokens free of charge, these tokens only hold value if the project succeeds and might come with tax obligations.
Q.4 Can I sell my airdropped crypto tokens immediately?
This depends on the terms of the airdrop as some might require you to hold onto the tokens for a certain amount of time before you are able to sell them.
Q.5 Are all crypto airdrops legitimate?
No, not all airdrops are legitimate. It’s important to do research of the airdrop before participating in order to avoid scams.
Q.6 How can I participate in a bounty airdrop?
Typically, you will need to complete specific tasks set by the project such as sharing content on social media or finding bugs within their systems.
Q.7 What should I do if I receive an airdrop from an unknown source?
If you receive an airdrop from an unknown source, be cautious and do not provide any personal information or private keys. Always research suspicious items to identify its legitimacy before taking any further action.
Conclusion:
Crypto airdrops represent a unique aspect of the cryptocurrency world, providing a mix of marketing strategy and user reward system. They offer an excellent way for crypto lovers to diversify their portfolios and explore new tokens.
Always remember to exercise caution and conduct thorough research before participating in airdrops. In the crypto world, knowledge is the best defence.
