We all know very well what cryptocurrency is. Perhaps only the very lazy are not familiar with the concepts of the crypto world, such as: coin, token, bitcoin or smart contract. However, there are more confusing and complex definitions that are not so well known and require explanation.

One term that often leaves newbies confused is “Airdrop”. In this article, we will understand the concept of cryptocurrency airdrops, what they are, how they work, and their importance in the crypto community.

What are crypto airdrops?

An airdrop is a process in which the creators of crypto-tokens distribute their tokens for free to the wallets of the distribution participants.

These giveaways are usually conducted as part of a marketing strategy aimed at spreading awareness of a new cryptocurrency or rewarding loyal customers. The user who received such tokens can dispose of them at his own discretion: sell or save as an investment.

Why do companies do Airdrops?

At first glance, cryptocurrency giveaways don’t look like such a good event. After all, why would a company give away potentially valuable tokens for free? Well, there are several explanations for this:

• Marketing. Airdrop is a powerful tool for disseminating information about a new cryptocurrency. People are naturally excited about free things, which helps create excitement around the new token.
• Decentralization. In a decentralized network, power is distributed among different nodes or users. By distributing tokens widely, companies can avoid concentration of power in one hand and ensure that their cryptocurrency remains decentralized and unaffected.
• Loyalty Reward. Existing users who hold a specific cryptocurrency in their wallet can receive airdrop tokens as a reward for their loyalty. This incentivizes users to hold onto their coins, reducing market volatility.

From a user’s point of view, an airdrop is an excellent opportunity to receive tokens for free. These tokens can then be stored or sold for profit, making participation in airdrops a potential source of passive income.

Types of Cryptocurrency Giveaways

Understanding the different types of cryptocurrency airdrops can help users determine which ones are most suitable for them. In general, we can divide airdrops into four different types:

Standard airdrops: in this situation, tokens are distributed among users who own a certain cryptocurrency. The basis for such distributions is usually the blockchain on which the new token is built.

For example, if a new token is created on the Ethereum blockchain, the token creators may decide to distribute the tokens to all users who currently hold Ethereum (ETH) in their wallets.

Holder Giveaways: this type of giveaway is a reward system for holders of a specific coin. Companies will choose a specific cryptocurrency, and all holders of that cryptocurrency will receive a reward, regardless of the platform.

This type of airdrop serves as an incentive for users to hold onto their coins, thereby maintaining or even increasing their value.

Exclusive Giveaways: some giveaways are exclusive, meaning they are only available to a select group of people.

For example, token creators may choose to distribute tokens to their subscribers or community members. To qualify for these giveaways, users are often required to register or join a specific group or community.

Bounty Airdrops: these airdrops are designed to reward users for completing certain tasks. These tasks can range from posting on social media, writing a blog article, inviting a friend, or even fixing bugs in the project’s software. If completed successfully, the user receives tokens as a bounty reward.

Each type of giveaway has its own unique set of rules and eligibility criteria, so it is important to read and understand the specifics of the giveaway before entering.

How do crypto airdrops work?

The procedure varies depending on the company and the type of giveaway. But, as a rule, the algorithm consists of the following steps:

1. Announcement/Announcement: Companies usually announce giveaways on their social media or through email newsletters.
2. User Action: Depending on the type of distribution, users may be required to perform certain actions.
   For example, to participate in holder giveaways, you will need to have the required cryptocurrency in your wallet. For standard giveaways, you may be required to fill out a form or sign up for a newsletter.
3. Distribution: After distribution, tokens are automatically transferred to eligible wallets.

How to participate in Airdrops?

Most airdrops don’t require much effort to participate in. Here are some general principles:

1. Stay Informed: follow your favorite cryptocurrency companies on social media, sign up for their newsletters, and join their communities to stay up to date on potential giveaways.
2. Store cryptocurrencies: owning a diverse set of cryptocurrencies can give you the opportunity to participate in more airdrops.
3. Completing tasks: some giveaways require users to complete certain tasks, such as messaging on social media or inviting friends.

Successful giveaways in the history of cryptocurrencies

Over the years, several cryptocurrency airdrops have made headlines due to their unprecedented success. These giveaways not only rewarded recipients, but also effectively increased user awareness of the projects, contributing to their long-term success.

Uniswap (UNI): In 2020, Uniswap launched its own UNI token and decided to give 400 UNI to every wallet that used its decentralized exchange service.

At the time, holders spent about $1,200 on the airdrop, but UNI’s value has since skyrocketed, making it one of the most profitable airdrops in cryptocurrency history.

Stellar Lumens (XLM): In 2019, the Stellar Development Foundation partnered with Blockchain.com to make the largest airdrop in history, worth $125 million. Blockchain.com wallet users received free XLM tokens.

Pros and cons of token giveaways

Like any industry in the crypto world, airdrops have their pros and cons.

Pros:

• Free tokens. Perhaps the most significant benefit of airdrops is that they provide free tokens. Users can grow their crypto portfolio without spending a penny.
• Opening new projects. The airdrop gives users the opportunity to learn about and participate in new blockchain projects. Early information may be useful if the project takes off into space.
• Profit potential. If the value of the distributed tokens increases over time, users will be able to profit by trading or selling them.

Minuses:

• Risks of fraud. Unfortunately, not all giveaways are real. Some of them are organized by scammers to trick people into giving up personal information or secret keys.
• Tax consequences. Depending on the country’s laws, tokens received from a cryptocurrency airdrop may be considered taxable income, which may complicate your tax situation.
• Token value. Not all distributions turn out to be valuable. Some tokens may never take off, meaning they will remain worthless and just hang out in your wallet.

Despite these potential pitfalls, airdrop can be a useful aspect of the cryptocurrency experience for vigilant users.

How to Avoid Airdrop Scams?

Unfortunately, with the rise in popularity, token giveaway scams have become more common. Here are some ways you can protect yourself:

• Do not share your private key: Your private key is the master key of your digital wallet. No legitimate airdrop will ever ask for this. If such a request is made, then most likely it is a scam.
• Check the source: always double-check the source of the distribution and, preferably, in several ways. Fraudsters often pretend to be popular crypto projects. If a giveaway ad seems too good to be true, it may be a scam.
• Study the project: pay attention to the product underlying the airdrop. Legitimate distributions usually carry out projects that have a close-knit team, complete technical documentation, and a clear development roadmap. If these elements are missing or vague, approach the project with extreme caution.

By being vigilant and doing thorough research, you can significantly reduce your risk of falling victim to an airdrop scam. Stay safe by always prioritizing the protection of your information and assets.

Cryptocurrency giveaways and taxes

An often overlooked aspect of cryptocurrency giveaways is their tax implications. Although airdrops may seem like free money, in many tax jurisdictions they are classified as income.

When you receive an airdrop, you are typically charged the market value of the tokens on the day you received them. Therefore, it is very important to track this value. If you later sell the tokens and their value increases, you may also have to pay capital gains taxes.

In conclusion

Cryptocurrency giveaways represent a unique aspect of the cryptocurrency world, providing a combination of marketing strategy and user reward system. They offer a great way for crypto enthusiasts to diversify their portfolios and explore new tokens.

However, always remember to exercise caution and do thorough research before participating in airdrops. After all, in the crypto world, knowledge is the best defense.