If you’ve casually browsed crypto communities online, you’ve probably seen startups advertising “free” airdrops of digital assets (like non-fungible tokens or NFTs) or even a few tokens of their new native cryptocurrency. But what are airdrops exactly, and how do they work?

Read on to learn the basics of crypto airdrops so you can start your journey into decentralized finance.

What’s A Crypto Airdrop?

To the uninitiated, the crypto slang “airdrop” probably evokes one of two things: Apple’s quick file-sharing capabilities or a package literally being dropped from the sky. However, to crypto investors, it means something that combines the two scenarios.

Crypto airdropping typically refers to sending out free crypto assets and coins to anyone who wants to participate. This is usually done in exchange for a small task, like following a decentralized application dev team on various social media platforms and resharing their posts. This might seem counter-intuitive by all the rules of traditional finance, but they’re fairly common in the crypto market.

Different Kinds Of Crypto Airdrops

While the slang term “airdrop” usually refers to the standard way of doing things, there are several kinds of airdrops that startups and project developers use. Here are a few:

• Standard airdrop: The standard airdrop is the most common kind found within the crypto community. Developers will send their native currency or NFTs to a participant’s cryptocurrency wallet in exchange for completing a small task.

• Hard fork airdrop: A hard fork airdrop follows a significant change in the protocol of a cryptocurrency coin, creating a “fork” between new and old. To keep using this specific currency, holders receive new tokens equivalent to the amount they already had.

• Bounty airdrop: Bounty airdrops are similar to standard ones. Users who helped promote a project on peer-to-peer networks, social media platforms, or a crypto market are awarded coins for their efforts.

• Exclusive airdrop: Exclusive airdrops are one of the most common incentive mechanisms used to maintain a holder’s loyalty to a specific token or blockchain platform. These are usually awarded to long-time supporters of a project.

• Holder airdrop: As the name suggests, holder airdrops will grant new types of currencies into crypto wallets that hold a minimum quantity of Bitcoin and Ethereum. That’s because the alternative coin is usually built on the same blockchain network.

Why People Give Away Free Crypto Coins

Build Hype Among Crypto Enthusiasts

Blockchain technology continues to develop rapidly, which means hundreds of development groups and individuals are racing to deploy their projects and gain traction. However, it’s easy to get lost in the mix when in-progress projects are at an all-time high. 

As a result, some groups have started using the crypto airdrop to capture attention and create hype. This is especially prevalent in the online gaming community since the promise of free in-game currency is usually enough to get people playing.

Gather User Data

Offering economic incentives in the form of cryptocurrency or NFTs is an effective way to convince users to hand over their data willingly. Through small tasks like following a project’s social media or filling out a basic form, development teams learn more about their potential user base – therefore informing the project’s roadmap.

When Do Crypto Airdrops Not Work?

Airdrop Scams

Many folks enter the world of cryptocurrency with an investor mentality, which usually means they’re looking for a way to grow their money. As a result, unsavory individuals and groups have started deploying airdrop scams designed to phish for personal keys. This way, they can drain your account of cryptocurrency without being traced. 

Shortage Of Crypto Tokens

While most crypto project runners would be more than happy to have too many people interested in their brainchild, there is a point when it becomes a problem if you’re offering a crypto airdrop. Companies and groups that provide their native currency in exchange for a like or follow might find themselves depleting their treasury before the project even gets off the ground. 

This can result in negative sentiment about their project, which is exceptionally harmful early on. Likewise, there’s nothing stopping users from immediately reselling the currency or NFT that was airdropped to them. This can flood the secondary market with supply, which tanks the asset’s original value.

Final Thoughts On Crypto Airdrops

Airdrops can be a powerful tool for crypto project managers while also feeling like a godsend to beginner traders, but there are some dangers on both sides. Luckily, simply learning more about the concept can curb most potential complications. 

So, read up, take notes, and do your research before getting swept up by the manic energy of a crypto airdrop.