Those who frequently use multiple crypto exchanges, or even those who get a lot of their crypto info from social media, are likely very familiar with the concept of crypto airdrops. Airdrops provide a way to advertise a new project and reward users of networks. But there are many who don’t really know or understand what crypto airdrops are, nor do they understand the risks involved.
Crypto airdrops have a rich history, and they are almost as old as cryptocurrency itself. The airdrop is an effective method of distributing a token or coin. And yet, they can also raise some issues.
Here’s everything you need to know before you decide to participate in an airdrop.
What Exactly Is a Crypto Airdrop?
If you are an iPhone user, you’ve likely used the airdrop function before. Users can “drop” files to other users in close proximity, allowing for quick and easy distribution of data. Crypto airdrops are a similar concept, although there’s no geographical limit.
With crypto airdrops, a network can drop crypto into the wallets of all of a given coin’s holders on a particular network. The concept is meant to make for a convenient way to quickly distribute mass amounts of a currency. What differentiates the crypto airdrop from something like the iPhone airdrop is that there’s no geographic bound; a crypto airdrop can be delivered to users worldwide.
The first ever crypto airdrop is nearly as old as cryptocurrency itself. Auroracoin (CCC:AUR-USD) was created as a decentralized alternative to both the Icelandic krona and Bitcoin (CCC:BTC-USD) back in 2014. The network has a total supply of 21 million AUR. Of this 21 million, one quarter of the AUR was airdropped to all Icelandic citizens who registered with the network. Another quarter was permanently burned. Ever since Auroracoin created this precedent, thousands of airdrops have taken place since.
Who Conducts Airdrops? How Do Users Sign Up?
Airdrops are a very neat part of the blockchain industry. They allow networks to give users free currency. Who doesn’t like the sound of that? Of course, while the end goal for the users is to receive free money, the goal for those conducting the crypto airdrops can vary.
Most often, one will see airdrops conducted by small blockchain startups. Of course, there’s no better way to advertise and build a user base than by providing free goods. When a holder receives free assets, they’re obviously more likely to use the network associated with that asset.
That’s not to say that older projects don’t utilize airdrops. In fact, the airdrop is a very common way to reward users who have been loyal to a particular network. Sometimes, a network might airdrop a crypto to users simply for holding a certain type of cryptocurrency. For example, the ShapeShift (CCC:FOX-USD) network airdropped over $100 million in FOX to users on different decentralized exchanges (DEX) who held DeFi cryptos in their wallets.
Users who want to get in on crypto airdrops must first seek out networks that conduct them. A variety of tools exist, such as Airdrops.io, that allow users to find upcoming crypto airdrops. Tools like Airdrops.io will aggregate upcoming and ongoing airdrops.
The best of these tools will also include step-by-step guides for each coin or token, explaining exactly what one must do to participate. This is extremely convenient, because networks will oftentimes differ in the rules to participate. Some require users to make a trade on their platform; others still might airdrop a user tokens simply for holding the currency in a wallet.
Crypto Airdrop Scams Mean Users Should Exercise Caution
Since crypto airdrops offers users a sort of instant satisfaction, there are some dangers of the trade. Indeed, some bad actors look to exploit the excitement of receiving free currency, and they will devise schemes to take advantage of users. As such, it’s important to exercise caution.
Users who often read about cryptocurrency on social media platforms like Twitter have surely seen advertisements for different airdrops. However, these airdrops certainly aren’t all legitimate. Fake airdrops are one of the most popular methods of scamming less knowledgeable investors.
They are so popular, in fact, that major blockchain players like crypto exchange Coinbase (NASDAQ:COIN) are creating public service announcements warning of fake airdrops. According to the company’s recent release, a single airdrop scamming campaign has drained users in over $15 million in assets.
Users can take a number of steps to mitigate the chance of participating in a fake airdrop. Using only the most reputable of wallets is one such step; large wallet developers like MetaMask have measures in place to flag cryptocurrencies that don’t reach their credibility standards. Moreover, one can avoid these scams by remaining vigilant about protecting sensitive data. An airdrop from a legitimate operation will have to always ask for a wallet address, otherwise they obviously wouldn’t have a place to send the coins. However, it will never ask for the private key to a wallet; this is a surefire sign of a scam.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.