Crypto users that frequently interact with new and existing platforms will likely receive an airdrop at some stage. Airdrops involve blockchain-based projects and developers sending out free tokens to members of their communities as part of a broader marketing initiative.
The main idea is to send newly minted tokens to hundreds or thousands of different wallet addresses with the hope recipients will be more inclined to engage with the corresponding project – even if it’s only to learn how to cash out the free tokens into something else.
This concept is similar to finding a free discount card in your mailbox to encourage you to visit a new store in the area. However, a crypto airdrop isn't predominantly about making the recipient spend money but rather raising awareness for new projects and services.
In most cases, a crypto airdrop is issued to users in exchange for completing a certain task. These tasks often involve things such as:
- Following an account on social media.
- Sharing or retweeting one of their posts, including hashtags.
- Sending or receiving a transaction (using a particular crypto platform or wallet).
- Creating an account and signing up to receive updates.
There are also instances when a crypto airdrop may be issued to users without needing to do anything, as we will highlight below.
Why do crypto airdrops exist?
The primary reason for organizing a crypto airdrop is to promote a blockchain startup, project or service. By issuing tokens to users, the team can bootstrap its project and ensure a fair distribution of tokens among its community from day one. Moreover, recipients of these tokens are incentivized to increase awareness and help the project reach a broader audience once the token begins trading on an exchange. The more interest surrounding the token, the more likely it will rise in price.
Airdrops often gain traction by promoting the launch on a project's website, cryptocurrency forums and social media. This is no different from receiving a HelloFresh voucher in your email with a discount code, as those campaigns are designed to bring more people to the platform through a financial incentive.
Legitimate crypto airdrops will never ask users to make any investment. Instead, it is a way to stand out among competitors that have pursued external funding before issuing their tokens.
How do crypto airdrops work and are they safe?
There are multiple ways to conduct a crypto airdrop:
- Have users complete one or multiple small social tasks to qualify for receiving the airdrop at a later date.
- Automatically distribute tokens to holders of a particular asset or balance on the blockchain where the airdrop will occur. (For instance, every address with a balance of 0.01 ether or higher gets the airdrop.)
- Taking a blockchain snapshot at a previous date and letting users claim their airdrop tokens from the project's website through a smart contract.
Despite their popularity, however, crypto airdrops aren’t always as risk-free as they seem.
Read More: 4 Ways to Stay Safe in Crypto
Because recipients receive "free money" in their wallets, there will be airdrops that are nothing more than pump-and-dump schemes. More specifically, the creator issues a token and hopes there will be enough hype surrounding it to have it listed on an exchange. Once tokens begin trading, the creator sells their sizeable portion of tokens, crashing the price.
Another potential attack vector is the so-called dusting attack. A scammer will send a small amount of cryptocurrency to an unsuspecting user to erode their privacy. Then, the attacker will track down the transaction activity of the wallet tokens distributed to de-anonymize the person or company operating the wallet.
Finally, since airdrops are considered income by the U.S. Internal Revenue Service, it means whenever you received an amount of “free tokens” you’ll actually need to pay tax on them – whether you wanted the airdrop in the first place or not.
Read more: Crypto Tax Guide For U.S Citizens
Examples of crypto airdrops
The cryptocurrency industry has recently seen a few crypto airdrops that took users by surprise.
OpenDao’s airdrop of SOS tokens rewarded all non-fungible token (NFT) creators, collections and enthusiasts who had previously made transactions on the OpenSea NFT marketplace. Recipients did not have to complete any task other than manually claiming the token from the website. The airdrop helped OpenDao grow its Twitter following to over 60,000, and more than 120,000 addresses claimed the token.
A similar initiative came from the Gas DAO, which issued the GAS token on the Ethereum blockchain. Anyone who ever paid $1,559 or more in gas fees on Ethereum was eligible for the airdrop, with tokens claimable via the website. More than 57,000 addresses claimed the airdrop. The GAS token provides voting rights in the Gas DAO, which aims to be the voice of the Ethereum network's active users.
The third example is the LOOKS airdrop orchestrated by the LooksRare team. Users with over 3 ether in transaction volume on OpenSea between June 16, 2021, and Dec. 16, 2021, were eligible for LOOKS tokens after listing an NFT for sale on the LooksRare marketplace. Users holding the LOOKS token receive a share of the trading fees generated by the LooksRare platform. Additionally, users can stake LOOKS to earn more tokens.
How can you become eligible for a crypto airdrop?
As a crypto airdrop is primarily designed for promotional and marketing efforts, it can be tricky to ensure you are eligible for future events. Every airdrop has individual requirements to assess eligibility, although most of them are easy to find. An airdrop involving a blockchain snapshot is often communicated after the fact, making qualification difficult. However, there are other options to explore:
- Find dedicated crypto airdrop websites (you will usually get a notification via email) - similar to signing up for promotions from a store you regularly buy from.
- Check social media for the #airdrop hashtag and see if anything new has happened.
- Be an active user of different cryptocurrency services, products, platforms and blockchains.
- Explore cryptocurrency-related forums and news portals for mentions of a recent or upcoming airdrop.
The main requirement for receiving crypto airdrops is having a cryptocurrency wallet with a balance. One can't receive or claim an airdrop without having a wallet address. Using an exchange address is convenient but not suitable for airdrops. Instead, users should look into the various cryptocurrency wallet solutions they can use to store their funds. MetaMask is one of the most popular wallets to use.
Read More: How to Open Your First Crypto Wallet