Learn What Are Airdrops? 5 Benefits of Free Tokens - Ultimate Guide

Updated on: April 24th, 2020
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What Are Airdrops? The Ultimate Guide to Airdrops (Free Tokens)

What Are Airdrops? The Ultimate Guide to Airdrops (Free Tokens) guide

Reading Time: 14 mins

Cryptocurrency airdrops are basically free coins that are dropped directly into your wallet. It is literally free money handed over to you!

While that does sound pretty fantastical, there is an actual method behind this madness. Airdrops are calculated marketing maneuvers which actually saves companies a lot of money in the long run.

In this guide, we are going to look into what Airdrops are and how they help companies with their marketing and distribution strategies.

What does “Airdrop” mean?

In its literal definition and historical use, an airdrop is a tactic by which crates of food and essential supplies are dropped via airplane to people in need. So, when you see old war footages of soldiers dropping crates of food/supplies etc., that is basically an airdrop.

The Ultimate Guide to Airdrops (Free Tokens) : What Are Airdrops? The Ultimate Guide to Airdrops (Free Tokens)

Image Credit: Millitary.com

In the context of cryptocurrencies, however, this takes a whole new meaning.

If you are involved in the crypto space, then you must have come across this term before. The purpose of this article is to clear up all the confusion that you may have surrounding this term. Also, hopefully, you will learn how to carefully dissect airdrops to make yourself a pretty nifty profit from them!

Airdrops are basically a process by which a company distributes its tokens to the wallets of certain users, completely free of charge. So, the most obvious question that you are thinking about right now is, why will companies simply give their tokens away?

What Are Airdrops? And Why Companies Do It

What Are Airdrops? The Ultimate Guide to Airdrops (Free Tokens)

There are actually several reasons why companies may want to conduct airdrops:

  • Generating Awareness
  • Understanding the users
  • Raising Funds
  • Rewarding or Inspiring Loyalty
  • Wider Distribution of Tokens
  • Hard Forks

#1 Generating Awareness

One of the most important roles of airdrops is to create awareness. While ICOs have raised more than $7 billion in 2018, the fact remains that a major chunk of those funds was raised by a handful of projects. Because of the sheer number of projects out there, most of the promising ICOs don’t even get the attention they deserve.

So, instead of potential users painfully going through ICOs, hunting down good projects and investing in them, what if these projects gave you a few of their tokens? Well, you will automatically get a stake in that system right? The moment you do that, if you are an experienced investor, you will want to learn more about the project.

That in itself is creating a lot of awareness in the project.

Plus, when you search for Airdrops on Twitter, you are invariably going to come across more projects, like this:

The Ultimate Guide to Airdrops (Free Tokens) : What Are Airdrops? The Ultimate Guide to Airdrops (Free Tokens)
#2 Understanding the Users

In order to take part in certain airdrops, you will have to fill up a form like this:

What Are Airdrops? The Ultimate Guide to Airdrops (Free Tokens)

So, what is the purpose of filling a form like this?

By filling them up, the company will gain more information about you, a potential user which will help them make more focused marketing solutions towards their ideal audience.

#3 Raising Funds

EOS airdrops have actually turned out to be a great fundraising method. So, how will that work? Let’s check it out.

Suppose we are creating a  on the EOS blockchain and this DApp uses ASD tokens. We have issued 100 million ASD tokens and after the launch of the project, each ASD token is going to be valued at $0.10.

So, the total market cap of your tokens is 100 million * 0.10 = $10 million.

As soon as you launch, you decide to allocate 20 million of these tokens for EOS drops. If you do the math, then that’s 20 million * 0.1 = $2 million that you are allocating just for free giveaways. So, your overall capital goes down from $10 million to (10-2) $8 million.

But, as your airdrop campaign continues, and social media gets flooded with news about your token and you get more eyes on your project. Provided you have a good model, you will have more people posting about you and studying up on what you have to offer. This will increase the perceived value of your tokens.

Even if the value of each ASD token rises by $0.04, the overall value of your tokens will go up to (0.04 * 80) = $11.2 million.

So, by giving away 20% of your tokens, you have raised (11.2 -10) = $1.2 million without even selling a single token! That’s how fundraising in airdrops works.

#4 Rewarding or Inspiring Loyalty

Loyalty among crypto users is a very rare thing. The average user wants to make as much money as possible and the way they do that is by constantly running behind the “next big token” leaving the newcomers behind. Some AirDrops are constructed in such a way that the more tokens you hold, the more you receive in subsequent AirDrops. So, if a user is actually loyal to a token and keeps a substantial amount of it in their wallet, they can be rewarded with more tokens by the company.

At the same time, AirDrops can inspire loyalty among users too since they are now actually incentivized to buy and keep tokens.

#5 Wider Distribution of Tokens

One of the worst things that can happen to an ICO is a hostile takeover by whales. So, what exactly are whales? A whale is a really rich investor who buys a lot of tokens in an ICO and doesn’t let anyone else get their slice of pie.

Let’s work through an infamous example.

The BAT ICO had a lot of hype because it was Brendan Eich’s brainchild. Brendan Eich happens to be the same guy who created JavaScript and Mozilla Firefox. When the BAT ICO did happen, one whale took control of 20.7% of the BAT tokens in existence. Just checkout the BAT token distribution below:

The Ultimate Guide to Airdrops (Free Tokens)

Turns out that 5 accounts own more than 50% of the BAT tokens in existence! Now, can you guess why this is a problem?

The idea of cryptocurrencies is that they are supposed to be decentralized. But what happens if a majority of the tokens are taken over by a few people? It won’t really be decentralized now, will it?

So, can the issuing company do anything to make sure that their tokens are evenly distributed and truly decentralized? Well, yeah AirDrops can help where users are dropped tokens proportionate to their existing holdings.

Airdrops are a pretty effective method of achieving wide and even distribution. All these companies and Dapps are built upon a parent blockchain, like EOS, Ethereum etc. These blockchains are relatively well distributed. Companies can take advantage of that distribution by airdropping their tokens to the holders of the parent blockchain token.

Why is this method so effective?

Well, let’s take an example. Do you remember all those stuff that you used to get free with your cup noodles?

The Ultimate Guide to Airdrops (Free Tokens)

There was a reason behind that.

Cup noodles are a pretty in-demand product and are pretty well-distributed. This is why, when someone comes up with brand new chocolate or biscuit, they strike up a deal with the noodle company to give their product away for free (or it could be a new product that the company behind the noodles is making).

By doing this, they are making sure that a pretty well-distributed and diversified group of people are testing out their products. They saved up a whole lot of cash that they would have needed to use in their marketing by taking advantage of the distribution system and credibility of an already well-established product.

#6 Hard Forks

So, what are hard forks?

A fork is a condition whereby the state of the blockchain diverges into chains where a part of the network has a different perspective on the history of transactions than a different part of the network. That is basically what a fork is, it is a divergence in the perspective of the state of the blockchain.

Now, there are two kinds of forks:

  • Soft Fork
  • Hard Fork

Soft Fork

Whenever a chain needs to be updated there are two ways of doing that: a soft fork or a hard fork. Think of soft fork as an update in the software which is backward compatible. What does that mean? Suppose you are running MS Excel 2005 in your laptop and you want to open a spreadsheet built in MS Excel 2015, you can still open it because MS Excel 2015 is backwards compatible.

BUT, having said that there is a difference. All the updates that you can enjoy in the newer version won’t be visible to you in the older version. Going back to our MS excel analogy again, suppose there is a feature which allows to put in GIFs in the spreadsheet in the 2015 version, you won’t see those GIFs in the 2005 version. So basically, you will see all text but won’t see the GIF.

Hard Fork

The primary difference between a soft fork and hard fork is that it is not backwards compatible. Once it is utilized there is absolutely no going back whatsoever. If you do not join the upgraded version of the blockchain then you do not get access to any of the new updates or interact with users of the new system whatsoever. Think PlayStation 3 and PlayStation 4. You can’t play PS3 games in PS4 and you can’t play PS4 games on PS3.

The Ultimate Guide to Airdrops (Free Tokens)

Andreas Antonopoulos describes the difference between hard and soft fork like this: If a vegetarian restaurant would choose to add pork to their menu it would be considered to be a hard fork. if they would decide to add vegan dishes, everyone who is vegetarian could still eat vegan, you don’t have to be vegan to eat there, you could still be vegetarian to eat there and meat eaters could eat there too so that’s a soft fork.

So, on the occasion of a hard fork, users of the original coin can get the new coins as a result of an airdrop.

This is what happened with Bitcoin Cash (BCH). After the fork, all BTC holders got BCH in a 1:1 proportion. Since the BTC token is so well distributed, BCH got to share the distribution as well.

How to Take Part in Airdrops

Well, you can get involved any time you want to. There are just three things that you will need to get started:

#1 Cryptocurrency Wallet

The Ultimate Guide to Airdrops (Free Tokens)

A cryptocurrency wallet is a digital wallet that you can use to store, send and receive various cryptocurrencies.

The wallet isn’t exactly a wallet in a classical sense. You don’t exactly “store” your money as a real-world wallet does. Instead, it saves your public and private keys which in turn helps you send and receive money.

This is the first thing that you need to do because you will need a place to keep all your tokens.

You can look into the following wallets to help store your crypto:

  • Trezor
  • Ledger Nano S
  • MyEtherWaller
  • Exodus

#2 Base Tokens

The Ultimate Guide to Airdrops (Free Tokens)

EOS, Ethereum, and Bitcoin are all examples of base tokens.

The reason why we call them base tokens is because a majority of the projects built in the cryptospace are either created on top of or are forked off from those three.

So, if you want to take part in airdrops, then you need to have these tokens.

You can go to any exchange right now and trade for those three. They are pretty much available everywhere. Coinbase is a good place to start.

Keep in mind that you will get your airdrop tokens in proportion to your stake (the number of base tokens that you have).

#3 Access to Information

The Ultimate Guide to Airdrops (Free Tokens)

Ok, so now that you have your wallet and base tokens, the next thing you need to do is to know when and where exactly are these airdrops taking place.

Some time back, the only way that you could have kept track of all the airdrops is by judiciously going through forums like BitcoinTalk, however, the process is much simpler and straightforward now.

There are several sites which are dedicated just to airdrops and various social media channels which specifically reports on these various airdrops.

To get you started, this is what you need to do:

  • Follow relevant Twitter accounts
  • Join relevant Telegram groups and online airdrop forums
  • Use online services like Airdropaddict and Icodrops which will notify you of impending airdrops.

Types of Airdrops

There are different kinds of airdrops which requires a different set of actions to unlock. So, let’s go through some of the different types of airdrops:

  • Standard Airdrop
  • Bounty Airdrop
  • Holder Airdrop
  • Hardfork Airdrop
  • Exclusive Airdrop

Standard Airdrop: These airdrops require you to sign up for a newsletter or various updates. You simply register with your name and email ID and get qualified for the airdrop.

Bounty Airdrop: In this case, you need to perform an activity to qualify for the airdrop. Most common activity includes tweeting about the project. You will get rewarded for your actions.

Holder Airdrop: This kind of airdrop happens when you hold certain specific tokens in your wallet. So, a EOS-based crypto will airdrop some free tokens to you, provided you are holding EOS tokens in your wallet.

Hardfork Airdrop: When a coin hardforks from its original protocol, the holders of the original coin are qualified for the new coin’s airdrop as well. Like we have mentioned before, the Bitcoin Cash airdrop on Bitcoin holders is a perfect example.

Exclusive Airdrops: Suppose you are a loyal/VIP member of a particular project, website, club etc. You may qualify for exclusive airdrops which everyone else may not be privy to. As the name suggests, this airdrop is reserved exclusively for a specific community.

How to Not Get Scammed

With the allure of free money, a lot of intrigued investors will sign up for the airdrops. However, because of this very reason, there will be some scammers out there who will be hoping to make some easy money from these investors. If you are looking to sign up for an airdrop, then you should take all the steps necessary to make sure that you don’t fall for a scam.

This article describes the different kinds of airdrop scams out there.

  • Dump Airdrops
  • Private Key Scams
  • Information Trolling
  • Bait and Switch

Dump Airdrops

Dump airdrops are…well…all about pump and dumps. This is how they work:

  • Generate short-term hype via constant social media posts
  • As the interest grows, the value of the tokens go up
  • Once the tokens are available in the exchanges, the developers quickly dumps(sells) all their tokens for a nice profit.
  • As soon as the dumping process is done, the developers disappear from the face of the earth and the project dies.

Let’s look at a real-life example. Presenting to you…EDOGE!

The Ultimate Guide to Airdrops (Free Tokens)

EDOGE or Ether Doge was a project that was going to breath new life into Dogecoin by creating a version of it on the Ethereum blockchain. The developers were able to generate a buzz by airdropping 5 million EDOGE tokens. As soon as their token hit the exchanges, around 24th October 2017, they dumped all their tokens. The price of the tokens fell down dramatically, as you can see in the graph above. The developers disappeared and the project was abandoned.

So, how do you spot a dump airdrop? Well, it is not easy, but it is doable.

  • First, you need to take a look at the project’s website and look up the team members. Check out what they have done in the past and how their previous projects fared.
  • After that, you need to read their whitepaper. See what the project does and if it is bringing any real value to the ecosystem
  • Also, you must assess whether the business needs a token or not. A useless token is worthless

Private Key Scams

There is a very simple scam and that we say repeated time and time again.

Let’s make one thing clear: NEVER EVER share your private keys.

The private key is like your pin number. Will you just give away your pin number to random strangers? Of course, you won’t, so why should you give your private keys away?

Some scammy airdrops will ask for your private keys in the form. If they do that, then you know for sure that they are a scam. They will obviously need your public address to send you the tokens, but they have no business asking you for your private keys.

Information Trolling

Since the majority of the airdrops have access to some of your personal information like email id, telegram handle, twitter handle etc., they can accumulate all this data and sell it to other marketers to spam you with marketing content.

If that’s not enough, they may go a step further and try to phish you. Be very careful of these phishing attempts. By no means give them your email password or any sensitive private data. To avoid information trolling you need to, once again, do your research. You need to see if the project has any legitimacy or not.

Bait and Switch

Lastly, we have something called bait and switch airdrops. The idea is to trick you into signing for other partner airdrops, while you are signing up for one. This is done so that the scammer can quietly pocket some referral credit. They may even get you to join pump and dump telegram or discord groups.While these don’t cost any money, they sure are annoying and a waste of your time and mind space. Whenever an airdrop asks you to sign up for another airdrop or to join a social media group, avoid them.

What Are Airdrops: Conclusion

So, there you have it.

Airdrops are a brilliant tool which helps companies boost up their product and the users to pocket a pretty penny in the process as well. It seems like a pretty win-win situation, but as with anything in the crypto-world, there are scammers out there who are trying to take advantage of naive investors.

Always remember: Educate yourself and do your own research.

If you do your homework properly, you can actually make a pretty decent amount of money every single month from airdrops.

If you are a company then airdrops will help you reach a user-base and distribution far beyond your imagination. If you execute them properly, then you can definitely reap the rewards.

Rajarshi Mitra
Rajarshi started writing in the blockchain space after listening to Andreas Antonopoulos’ podcast with Joe Rogan. A content generating machine, Rajarshi has been consistently producing high-quality guides and articles for us since late 2016. His articles have been shared extensively in social media and several start-ups have used his guide as learning material for their staff. He is continuously invited all over his country to give talks in various crypto seminars and conferences. He has gained a solid reputation as a speaker/educator on top of being one of the most promising writers in the crypto space. When he is not busy nerding out over the latest in the blockchain/crypto space, he is usually busy watching re-runs of top gear and MMA.

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Is it possible to airdrop coins directly into the asset part of a smart contract?

Muhsin Mohammed

Malaravan Mani

Thanks for the article. Can you share

1) What are the successful and legitimate airdrops in recent months?
2) How does companies identify the right investor to drop their tokens?

Q: What are air drops?

Q: What are air drops?
1 answers
1 votes
A: Cryptocurrency airdrops are basically free coins that are dropped directly into your wallet.

Q: Why do Companies Do airdrops?

Q: Why do Companies Do airdrops?
1 answers
1 votes
  1. Generating Awareness
  2. Understanding the users
  3. Raising Funds
  4. Rewarding or Inspiring Loyalty
  5. Wider Distribution of Tokens
  6. Hard Forks

Q: What do you need for an airdrop?

Q: What do you need for an airdrop?
1 answers
1 votes
A: There are just three things that you will need to get started:
  1. Cryptocurrency Wallet
  2. The Base Tokens
  3. Access to Information

Q: What are the types of airdrop scams?

Q: What are the types of airdrop scams?
1 answers
1 votes
  1. Dump Airdrops
  2. Private Key Scams
  3. Information Trolling
  4. Bait and Switch
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