With a new revolution, cryptocurrency has entered the world of finance, and new ways have been created to earn, trade , and store value. While many people are familiar with buying cryptocurrencies via exchanges, there’s a lesser-known way to obtain digital coins without spending money: cryptocurrency airdrops. Coming through this guide, you will learn in depth about the cryptocurrency airdrop conceptions, how they work, the different types of airdrop and how to get them, and also get to see the potential risks. If you’re new to crypto or are searching for ways to diversify your investment portfolio, this article will help you to understand the airdrop phenomenon.
Understanding Cryptocurrency Airdrops
A cryptocurrency airdrop is the free token or coin distribution given away to individuals by blockchain projects, including using it as an incentive for promoting their projects or the new cryptocurrency itself. New crypto startups also use airdrops to raise awareness, generate community engagement, and reward early adopters. The free tokens are given to users that either already own selected cryptocurrencies or are rewarded for performing simple actions, or sometimes at random, to those who have a wallet.
For crypto enthusiasts, Airdrops provide a fantastic chance to grow your portfolio without spending a single penny. But, like most crypto related things, it is important you stay cautious and research before you dive in, because the crypto world is littered with scammers and their fraudulent airdrops.
How Does the Airdrop Process Work?
Typically, cryptocurrency airdrops follow a certain process that makes distributions of tokens convenient. Here’s how the typical airdrop process works:
1. Announcement and Promotion: After the introduction of an airdrop campaign, blockchain projects will announce via their official channels such as a website, social media platforms or specific forums. In truth, they can use various crypto news platforms to let everyone know.
2. Task Fulfillment: Some tasks you need to complete to be part of the airdrop. Tasks could go from joining Telegram groups, following social media accounts, registering an account to the project’s platform, etc.
3. Distribution: The airdrop campaign will end once the tasks are done and the tokens will be distributed directly to the participants’ wallets by the project team.
4. Holding and Use: Once airdropped tokens are received, they can be held, sold on an exchange, staked, or used within the projects ecosystem.
Airdrops are not just giveaways, they are a marketing thing to boost user engagement and word spread new projects. But they also help bootstrap liquidity for new tokens.
Different Types of Cryptocurrency Airdrops
Different airdrops have different ways of distributing and separate types of eligibility. It can help you understand what type of opportunity are the best.
1. Standard Token Distributions
The most simple form of token distribution is a standard airdrop. In other words, free tokens are automatically generated for users just by subscribing to the project’s service or sign up to the airdrop. This usually means giving out your email address, wallet address, and occasionally amount of interaction on social media.
Example: In a project might give out 100 free tokens to any one who subscribes to their emails list before a certain deadline.
2. Holder-Based Distributions
A holder airdrop works by having users who already own certain cryptocurrencies, for instance, Bitcoin (BTC) or Ethereum (ETH), automatically qualify for receipt of new tokens. An airdrop of this kind rewards users for holding a particular token in their wallet for a defined amount of time.
Example: A project can fork from Ethereum and create a new coin, and if so it may give Ethereum holders a proportional amount of the new coin.
3. Bounty Rewards
Participants have to complete certain tasks in return for tokens in a bounty airdrop. Some of their include writing about the project, inviting friends or promote the project on social media.
Example: Tokens might be given to users who tweet about a project or share referral links for others.
4. Exclusive Token Releases
Hard caps for every airdrop are also implemented, and of course exclusive airdrops are reserved for a select group of participants. Airdrops used to reward early project supporters, long time holders, or contributors. The idea is to give back to the community and make sure that loyal users receive tokens.
Example: The public sale could be exclusive to really early adopters or really early investors in the project.
5. Fork-Based Token Distributions
A new cryptocurrency is launched when a blockchain network splits, or forks, and a fork airdrop is distributed to the holders of an old cryptocurrency. So, if you held tokens on the original blockchain, you’d be given tokens of the newly forked chain at the same rate.
Example: When Bitcoin Cash (BCH) was split off from bitcoin during a Bitcoin fork, bitcoin holders received their equivalent amount of Bitcoin Cash.
6. Lottery-Style Airdrops
In a raffle airdrop, participants do a bit to qualify, and end up in a lottery. After the selection of winners, the project randomly chooses winners who receive tokens as reward.
Example: Letting users join their social media account and randomly select the hole winners to gain tokens if that is what a project needs.
Best Ways to Discover Airdrop Opportunities
In order to take part in airdrops, you must stay update on upcoming projects. Unfortunately, with scammers running rampant in the crypto space, it’s necessary to check reliable sources before trying airdrops. Here are some ways to find legitimate airdrops:
1. Specialized Airdrop Platforms
Ongoing and upcoming airdrops are aggregated on several websites. These platforms collect all the information about all the airdrops, and it’s very easy to see what is running now.
- Airdrop Alert: Airdrops are one of the most popular ways to earn without the need to compromise on your data.
- Airdrops.io: An other complete platform that summarizes active airdrop campaigns.
- CoinMarketCap Airdrop: There is also a dedicated airdrop section on CoinMarketCap, one of the most well-known crypto data platforms.
2. Official Websites for Blockchain Projects
Very often, blockchain projects announce their airdrops on their official website. Visiting a project website regularly brings you news about airdrop campaigns and also the criteria for participation, and the steps to participate.
3. Social Media and Blockchain Communities
Follow the project on Twitter, Telegram, and Reddit. These platforms are used by many projects, through which they announce airdrops and provide information on campaigns.
4. Engaging with Crypto Forums
While there is no use case for insider airdrops on every blockchain, joining crypto communities such as BitcoinTalk or Discord groups for blockchain discussions can keep you aware of airdrops on the horizon.
5. Crypto Wallets and Exchanges
Usually some crypto wallets and exchanges such as MetaMask, Trust Wallet, Binance, and KuCoin, partner with blockchain projects to do airdrops for their users.
6. Decentralized Apps and DeFi Platforms
Often, when users interact with the Decentralized Finance (DeFi) platform or decentralized applications (dApps), platforms conduct airdrops. It could be staking assets or providing liquidity.
Steps to Claim Your Airdropped Tokens
Once you find an airdrop that interests you, follow these steps to claim your tokens:
1. Set Up a Secure Crypto Wallet
To receive airdrop tokens, you’ll need a compatible cryptocurrency wallet. Ensure the wallet you have is compatible with the blockchain airdrop will go on. Some examples of fully decentralized wallets include MetaMask, which is a popular wallet for Ethereum-based tokens.
2. Evaluate the Project
You always have to do thorough research on the project that hosts the airdrop. You want a real team with whitepapers and community discussions. This actually helps from being scammed and fake airdrops.
3. Complete the Required Actions
What tasks or requirements do you complete for the project? It’s anything from joining social media channels, holding particular tokens in your wallet, to referring friends.
4. Wait for Your Tokens to Arrive
Your tokens will be distributed to your wallet once the airdrop campaign finishes. Sometimes you even have to do extra steps like verifying your wallet or sending a message.
Profiting from Cryptocurrency Airdrops
Money can be earned from airdrops without spending your own and still be profitable, but can you really make money that way? The potential for profit depends on several factors:
- Market Price at Time of Airdrop: The value of these tokens is low when you first get them airdropped. Still, these token gains are most impressive if you hold them long term based on the project’s growth and token’s value appreciation.
- Staking or Other Rewards: You might be able to stake some of the airdropped tokens and earn more rewards. The token and the platform influence the staking APR (Annual Percentage Rate).
- Use Cases: There are certain tokens within a project ecosystem that have utility, for example, you can use them for transaction purposes, or they can be governance tokens.
Taxation on Airdropped Tokens
You’ll need to look at the tax laws for your country to know how cryptocurrency airdrops are taxed. Airdropped tokens are taxed income in some jurisdictions where airdropped tokens must be reported on tax returns. Here are two common types of taxes you might encounter:
- Income Tax: When airdropped tokens are received, some countries treat them as taxable income.
- Capital Gains Tax: As such, if you end up selling the airdropped tokens at a later date, any profits you make in that sale may well see you subject to capital gains tax, depending on how long you hold the tokens over time and when the price increased.
I think it’s important to keep accurate records of when you receive a token (to avoid tax issues), and when you sell that same token (again). You should also consult with a tax professional.
Final Thoughts
An exciting method of getting free tokens with no cost, while interacting with new blockchain projects is the cryptocurrency airdrop. Similarly, as is the case with all investments, airdrops carry risk: scams and token values that are uncertain. Airdrops and other return offerings at minimum can only bring you rewards beyond if you stay informed, do the research, and use trusted platforms. It always pays to abide by your country’s tax laws and to consult professionals when you need to; this way you’re sure to be on the right side of the law.
