Trading stocks and securities in the financial markets have been around for a very long time. Cryptocurrencies, on the other hand, are quite recent. They are relatively young asset class, springing up and gaining more and more acceptance with the advancement of technology and the greater prominence of different forms of the media. The highly profitable nature of cryptocurrency trading has greatly accelerated its fame, but that has not been its only selling point. A very popular phenomenon in the cryptocurrency space is airdropping of crypto tokens, a two-way venture potentially lucrative to both enthusiasts and crypto projects alike.
Airdrops are marketing moves made by crypto projects to publicize the existence of their tokens or coins. This is done by sending a small amount of the tokens to the wallet addresses of people for free, or in exchange for the completion of small tasks. These tasks may include joining the project’s communities, publicizing the project’s content, filling forms, completing surveys, etc. It is usually part of a token’s ICO — Initial Coin Offering, a part of the earlier phase in the project’s existence where it is being disseminated to the public or community members in preparation for its trading to commence. The bulk of the tokens to be offered during the ICO are usually for sale, with the lesser part being earmarked for airdropping. However, not all ICOs involve airdropping.
Some airdrops are also carried out much later after the launch though. This might be as set out in the project’s model, or as a gift to celebrate important milestones like anniversaries. Airdrops can also come as a result of hard-forking, where a project splits into two different parts. A recent example of this is the BCH hardfork that came with the BCHABC and BCHSV airdrop in 2020. This type of airdrops typically requires the holders to meet a certain requirement, which is usually holding a minimum amount of a token in their wallets at a particular time known as the snapshot time.
The purpose of an airdrop is basically publicity. It is an elaborate market stunt to boost a project’s popularity and acceptance amongst people, and also gain more information about the community’s sentiments towards the project. Airdrops could help boost a coin’s sale by setting possession eligibility requirements for the airdrop, making more people buy and hold the coin to be eligible for the airdrop. It could also serve as a very effective customer reward system, an example being the 2020 Uniswap airdrop. Along with the trend, NFT airdrops are also becoming really popular as a means to promote awareness and interest in the novel technology.
However, that is not to say the concept of airdrops is all pros and no cons. As is very common of high interest schemes, it is prone to abuse by malicious actors. One of such abuses is the use of airdrops for dusting attacks. This is when fraudulent persons send little quantities of tokens or coins into crypto wallets, and subsequently track the transaction activities of such wallets to decrypt hitherto private information about the account owner. Another scheme is the use of airdrops to facilitate pump and dump schemes. This is when the project’s company airdrops the tokens to people to temporarily spike trading activities and volume, driving up the price of the token. At the peak of the price movement, the owners then sell off large amounts of the token that they hold, leading to a dump and resulting in heavy losses for most. Generally, there are also fake airdrops where people perform tasks or buy and hold coins, only for the airdrop to never arrive.
All in all, airdrops are the freebies of the crypto space. They could prove to be a viable way of making cool money, as equally as they could wreak havoc on your account security and all. That is why it is highly advisable to be cautious with signing up for airdrops, and even more cautious with unsolicited airdrops popping up in wallets. With the right ground work and risk management, airdrops could be worth your while after all.
