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Crypto Airdrops: can they fuel the token economy and accelerate growth?

5 min read

Aug 23, 2021 3:56:44 AM

The cryptocurrency space is notorious for creating a lot of hype and utilizing unique ways of generating excitement among its community. An increasingly popular way of doing so is using “Airdrops.” Airdrops are a popular marketing stunt and this article will discuss in further detail what they are, how you can benefit from them, and what you should pay attention to.

Author: Elias Mendel

But what is an Airdrop?

An Airdrop describes the distribution of coins or tokens to wallet addresses. The coins or tokens are usually sent for free or in exchange for completing a little task, such as promoting the project on social media or providing your email address.

The project or start-up pursuing the distribution is oftentimes at an early stage and seeking ways to gain more attention. Hence, a free giveaway for those expressing early interest in the project can greatly increase awareness for their service and virtual currency, serving as a powerful marketing method. Figure 1 gives a summary of the process.

Furthermore, an Airdrop can quickly put a significant value to the token and financially reward the issuers as the increased fuss and wider distribution generated by the giveaway may result in a soaring trading volume.

Alternatively, although less known, Airdrops can occur in the event of a hard fork, meaning that the new code of the chain is incompatible with the old one. In order for users to interact with and transition to the updated version, they need equivalent tokens of the chain (e.g. the hard fork between Bitcoin and Bitcoin Cash in a 1:1 proportion a few years ago in 2017).

airdrop process blockchain crypto assets

Figure 1: A brief overview of the Airdrop distribution

Why are Airdrops so popular and effective?

Before we dive deeper into the topic it is important to clarify that Airdrops are not equal to and should not be directly compared with ICOs (Initial Coin Offerings). While both usually lead to rising knowledge about the respective project, ICOs are the main way for cryptocurrency projects to raise capital in order to fund further growth. On the other hand, an Airdrop can be understood as a promotional effort and marketing move looking to generally enlarge the number of potential customers, the user base, and adoption.

Psychology suggests that in order to enlarge the chances of a product or service succeeding, people need to familiarize themselves with it. And today's world in particular is characterized by constant exposure to advertising. Thus, positively remaining in a lot of people’s memory by standing out from the crowd and competition can be the subtle difference between achieving a breakthrough and remaining unnoticed.

How can you participate?

A requirement for participating in an Airdrop is that one holds a certain amount of coins of a more known base cryptocurrency, such as Ether (ETH), Binance (BNB) or Bitcoin (BTC) since many projects are built on or forked from these. Thus, you obviously need to have a wallet supporting the blockchain and your access information.
As previously mentioned, other conditions might include promoting the project on social media or having been an active user of the services since a set date.

The common procedure consists of the token issuers taking a “snapshot” of the blockchain at a pre-announced date and then distributing their Airdrop tokens to any wallet address holding a minimum amount of the base currency, e.g. ETH or BNB.

What you should bear in mind

One should always beware that these kinds of marketing moves in some instances can be “pump-and-dump” schemes, where the mere goal is to artificially inflate the price by creating a lot of publicity and shortly afterward dump the tokens for a large profit. Hence it is advisable to take a closer look at the team behind the event and its trustworthiness.

The same applies to giving away any personal data of yours as a necessity to take part in the Airdrop, e.g. your email address, Twitter account name, and so on. While this can be an efficient way for the project to gather further information about potential users, you should definitely consider who you are granting access to your information. Also, always remember: Never give away your private keys!

Uniswap 2020 Airdrop

Uniswap is the leading decentralized exchange (DEX) running on the Ethereum network, rendering a central mediation authority superfluous.
However, up until 2020 Uniswap did not have its own token and opted for an Airdrop distribution to anyone who used their services before a certain date. They gave each one of these users 400 UNI tokens, which as of this writing nearly amounts to a staggering 11.000 USD.
That is not too bad for a free giveaway if you ask me.

Final thoughts

Airdrops indisputably are a creative and refreshing way of promoting a cryptocurrency or a project. And generally speaking, there is certainly nothing wrong with receiving free tokens that could significantly appreciate in value. However, remember to keep in mind the points we addressed, as you do not want to fall victim to any fraudulent schemes. While on some occasions airdrops are purely supposed to reward user loyalty, it is normally the case that the issuer pursues self-interests and information gathering.

Looking at the implications of Airdrops, I cannot help but wonder if they might turn out to be an integral part of cryptocurrency mass adoption. The commonly required active involvement of the recipients, the potential monetary gain, and the novelty of Airdrops have the potential to captivate more and more people and prompt them to take a closer look at the underlying technology and keep getting in touch with it.

Hence, it takes a deeper understanding of the mass to sustainably fuel the advancement and spread of the cryptocurrency industry so as to lay the foundation for it to continue to unleash its disruptive potential.

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