What are Initial Coin Offering Airdrops?
Have you ever opened your cryptocurrency wallet and found that there are free coins from nowhere. Are there ways to earn tokens for free or for completing tasks or certain objectives? There is and it is called an airdrop. It’s a great way to distribute a certain amount of coins to the user base. But why do companies do this, what is it for them and how do airdrops happen? Read about airdrops in this comprehensive guide.
If you are new to cryptocurrencies and you don’t know what an ICO is, you can read our Initial Coin Offering guide so you can catch up with some of the technical parts of this guide. If you are new to cryptocurrencies in general, then you can read our Bitcoin guide where we explain how they work, how does blockchain work and some of its key features?
What are Airdrops?
An airdrop for a cryptocurrency is the procedure of distribution of tokens by awarding them to existing holders of a particular cryptocurrency. Airdrop is a variation of a giveaway that is used with the intent of promotion. Airdrop token receivers are usually required to perform certain tasks and objectives as conditions to obtain some of the distributed tokens.
Airdrops are effective and cost efficient ways to build trust and awareness, to spread brand awareness and to make a meaningful connection with the user base. This practice has raised questions about tax liabilities and if they amount to income or capital gains, but this is for regulators to decide.
How do Airdrops happen?
Airdrops can be distributed in various ways. One is through automatic airdrops resulting from forks or hard forks like Bitcoin Cash and Bitcoin Diamond. Token holders are counted and are automatically entitled to a certain amount of tokens from the new coin. These token holders are counted on the exact block number that the fork happens. The amount of cryptocurrency you have on the designated block number will be taken into account when distributing the airdrop.
The coin distribution happens in proportional ratios that are predetermined by the project’s team. The more you have, the more you will get. For the end user, collecting the new coins should be almost automatic. They need to have a wallet that supports the new coin. For developers these automatic airdrops are the easiest way of distributing the coins to the wallets of users. However by doing this they can’t actively collect information about users and if they actually use the tokens. That’s why this way of airdropping is a great way to kickstart the project into circulation, but it doesn’t ensure that the marketing aspect will be optimal.
The other way is incentivized airdrops. These incentives include purchasing in an ICO, people performing certain actions that help with the adoption and marketing of the new project or just free distributions from exchanges or projects. You can invest in Initial Coin Offerings and for your investment you can receive bonus tokens through an airdrop in addition to the tokens you will get for your investment through the smart contract.
Some ICOs require you to follow them on social media, other require you to make a promotional video about the specific coin. Other incentives include referring friends to check out the project, creating and posting other forms of content or joining a community. Bonus coins incentivize people to learn about the project. A great addition to incentivized airdrops is that it allows teams to collect valuable marketing information about the network’s users.
Some exchanges are making airdrops for marketing purposes on certain cryptocurrencies or just for thanking its user base. A big question is why do cryptocurrency projects give away for free their valuable tokens? The answer is marketing and awareness for the adoption process of the cryptocurrency.
Why do these events happen?
There are too many Initial Coin Offerings of cryptocurrencies and the battle for awareness is intense. The marketing aspect of an upcoming cryptocurrency is maybe the biggest of them all. An airdrop is a great marketing campaign that brings a lot of awareness and trust with holders at more than a reasonable price. Through airdrops, a new token can build up a big following of owners that can become a powerful network.
If you see in your wallet free coins you are more likely to research the project and the value that you are holding. When you research the project you are building some kind of trust with the product. If you trust it you are more likely to invest in it, recommend it or to increase your portfolio with it. For protocol developers, airdrops are a great and easy process of distributing the tokens to the hands of all owners.
As a marketing tool it does just what it is supposed to do. They distribute awareness and interest in the product like no other by providing value first. Airdrops even prove to be cost efficient compared to other marketing alternatives. Google or Facebook advertisement can be more expensive and less effective than airdrops.
Cryptocurrency airdrop examples
An example of airdrop distribution through a fork is Bitcoin Cash. In August 2017 Bitcoin Cash was given to all Bitcoin holders in a 1:1 ratio. As we now know BCH proved to be very valuable. In its peak it reached just over 4000$, so Bitcoin Cash’s airdrop was pretty beneficial for Bitcoin holders.
Another example is in September 2017 for Ethereum holders. OmiseGo distributed 5% of their tokens to all Ethereum holders. The ratio wasn’t as impressive as the one Bitcoin Cash had, but in the end it is free tokens. Stellar lumens also executed an airdrop on June 2017, rewarding Bitcoin holders with Stellar.
An example of free airdrop distribution from an exchange is Binance airdrop on Tron (TRX). Binance users with total assets on the exchange equal or greater than 0.003 BTC and having at least one transaction in their trading history were rewarded with 500 TRX to their account with an airdrop. This happened in November 2017.
Final things to keep in mind
Many sites are dedicated to informing users of upcoming, past and active airdrops. I don’t want to recommend any because there are many, but you can Google it and find a site that suits you. Sites give you useful information on how many days are left until the airdrop occurs. They tell you what currency you need to hold at the time of the airdrop in order to receive the tokens and information about the wallet.
With airdrops that are organized by exchanges you need to have a wallet in the exchange and to have a certain amount in the wallet. But with other airdrops you need to have a Bitcoin or Ethereum ERC-20 wallet. These wallets serve as your own personal wallet and are different than exchange wallets. If a certain airdrop requires an Ethereum wallet for example and you participate with the Ethereum wallet you have on the exchange, then you will lose the tokens you are about to receive for free.
Some airdrops are surprises, but most of them are announced ahead of time. Each with different rules of participation set by the project’s team. It is very important you make sure you are visiting the official site of the project when researching airdrops. A good way to check if it is the correct site is to check the project’s social media. The cryptocurrency market is not regulated so beware of many scammers out there. Never give your private key or wallet password or you are setting yourself up. Only your wallet’s public address is needed for participation so be careful.
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