What is an Airdrop?
In the crypto ecosystem, the term airdrop refers to a marketing strategy to distribute tokens or coins to numerous wallet addresses, usually for free or in exchange for some promotional services. It is a promotional tactic practiced by start-ups to promote their virtual currency projects in order to get a high trading scale in the exchange as an Initial Coin Offering (ICO).
This distribution of digital currency is generally made to active holders of crypto wallets through the company’s website or crypto forums. This method seeks to provide a wide & even distribution of virtual currencies in the crypto environs. In the United States, cryptocurrency has gained the government’s attention to be included in the tax norms.
Types of Airdrops
The airdrops can be categorized into the following different types depending on their set of actions.
- Standard Airdrop: This is the type of airdrop that gets initiated with signing up for newsletters and registering with basic credentials like name, email ID, etc. This simple procedure makes one qualified enough to participate in an airdrop.
- Bounty Airdrop: In this format of airdrop there is the need for performing some promotional activities to qualify for it. Here, airdrop serves as the reward for the performed activities.
- Holder Airdrop: The occurrence of this kind of airdrop is backed by the holding of specific tokens in the wallet. The holders of the tokens are provided the free tokens in their wallets. Therefore, it is termed a holder airdrop.
- Hard fork Airdrop: In this case, the coin/token holders are qualified for the airdrop only when their coin hard forks from its basic protocol. The Bitcoin Cash Airdrop is the best illustration of it that happened to Bitcoin holders.
- Exclusive Airdrops: This is the type of airdrop that provides privilege to the exclusively reserved community in the ecosystem to adhere to its benefits
Reasons for conducting airdrops
Being the marketing and promotional stunts for the start-ups it provides them with the following benefits which make it a highly effective method:
- Building Awareness: The wide range of projects in the market makes it highly competitive for the start-ups to take their stand. Thus, the airdrop emerged as one of the most vibrant market penetration methods that attract the trader and aware them of the company’s existence.
- Market analysis: In order to participate in an airdrop mechanism one needs to fill a form adhering to provided requirements. This helps the company to understand its market network and nature for the accomplishment of their long term goals.
- Fund Raising: Though the tokens are distributed for free which seems like a loss to the company yet, in the long run, it establishes a strong capital base for the company. Social media is flooded with company related promotional advertisements and news gets more users eye on them which helps a lot in the process.
- Promoting brand loyalty: The airdrops promote brand loyalty among users by making the users keep a substantial amount of tokens in their wallets. The token holders are periodically rewarded for their consistency which makes them stay brand loyal.
Participation in Airdrop
The participation in an airdrop process can be explained by considering procedural flow as follows:
- Cryptocurrency Wallet: The crypto wallets are the platform for the users to store, send, and receive their digital currencies. It facilitates trade by saving the public and private keys. There are certain widely accepted wallets namely Trezor, My Ether Wallet, NEO, Exodus, Stellar, TRON, EOS, etc. Thus, having a wallet is the basic step towards participation in an airdrop.
- Base Tokens: The base tokens are the ones on which the majority of projects are built upon in the crypto space. It is an essential requirement to participate in airdrops. The airdrop tokens are allotted in proportion to the user’s stake, which means depending on the holding of base tokens.
- Access to information: This step requires the users to identify the duration and platform where the airdrop takes place. Online portals like Airdrop addict and Icodrops are dedicated to tracking the airdrop status, so the users must make the best use of them to accumulate & access information.
Limitations of Airdrops
- At times, the funds raised through ICO are not circulated in the market in a planned manner which results in the occurrence of pump & dump phenomena and negative impacts on the value of the tokens.
- The airdrops are subjected to frequent scams and frauds. Therefore, it is better to conduct proper research and ensure the authenticity of the campaign.
- The initial phase of airdrop seems tempting to the ICO founders for raising funds. This may result in some adverse results if conducted with haste. Therefore, it is advised to take guidance from crypto experts.
Despite the limitations which can be shot with the gradual span of time, airdrop can be a significant source of income if traded with sincere verifications and authenticity.