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    Explained: What are crypto airdrops and how do they work?

    Explained: What are crypto airdrops and how do they work?

    Explained: What are crypto airdrops and how do they work?
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    By CNBCTV18.com  IST (Published)

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    Airdrops are a part of a broader marketing strategy that involves social media promotion, blog posts, and different levels of crypto holder participation. Just like supermarkets distribute free samples of an item to promote sales, blockchain-based startups give away free coins to incentivise the use of their platform.

    In the world of cryptocurrency, airdrops are a marketing strategy used by blockchain-based startups to incentivise the use of their platform. It involves providing free coins or tokens to users with public crypto wallets to promote a new virtual currency. It is similar to distributing free samples of an item in a supermarket to promote sales.
    Airdrops are usually a part of a broader marketing strategy that involves social media promotion, blog posts, and different levels of crypto holder participation. At times, airdrops can also be used as ploys for nefarious activities. So users need to be careful. Since they are supposed to be promotional tools, you must stay alert if a project seeks any investments.
    How do airdrops work?
    New blockchain-based companies first start promoting airdrops for their virtual currency on their website or a cryptocurrency forum. After creating awareness, the company sends the coin or tokens to established cryptocurrency wallet holders. Now, you may wonder how the company decides who to send the tokens to. Well, there are a few factors that can influence this decision.


    Many companies and startups send the new virtual currency to the wallets of active users of the blockchain community. Some companies might require a wallet holder to participate in a promotional activity like tweeting about the new virtual currency or making a post on a reputed crypto forum. In some cases, the holder might also be required to hold a certain amount of cryptocurrency coins in their wallets to qualify for the airdrop.
    Many of these companies will often send new tokens to holders who have ether or bitcoins in their wallets as the bitcoin and Ethereum communities are the largest in the crypto-sphere.
    Are ICO and airdrop the same?
    On the surface, initial coin offerings (ICO) and airdrops might seem similar, but they could not be more different. ICOs are events where a company offers to sell their new virtual currency to investors, who can buy it with alternative coins or tokens. Companies have ICOs to grow their companies by raising money from investors. These are like initial public offerings in the stock market. 


    In contrast, airdrops are purely promotional where a virtual currency is sent to wallet holders for free to bring awareness to a blockchain project or a coin or token. 
    Why are airdrops essential in the crypto community?
    As the crypto universe gains prominence, it has become difficult for new startups to stand out in a crowded market. The life cycle of a virtual coin depends on how many people are trading and holding it. Airdrops help get the ball rolling by providing coins or tokens to a few holders to create an initial user base without making users spend money on something they might not be aware of.
    Michael J Casey, Chair of CoinDesk's advisory board and an advisor at MIT's blockchain research initiative, said in a post on a CoinDesk blog: "A currency is nothing if it is not widely used. And that can't be achieved unless people make some cost-incurring effort to encourage widespread usage."
    Are there any risks in airdrops?
    All airdrops in the crypto community are not equal. Some malicious entities take advantage of these marketing tools to commit scams. Often, untrusted sources will announce an airdrop requiring users to send a certain amount of their own cryptocurrencies like ether and bitcoin in exchange for their tokens. This is usually an attempt by scammers and flim-flam artists to steal your money.
    These scams can be avoided with research and due diligence on the company that is having an airdrop. It would be best if you visited forums and official websites to check on the authenticity of an airdrop before participating in one.


     
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