Crypto exchanges usually distribute airdrops to loyal users from time to time. So what is an airdrop?
What is a Crypto Airdrop?
Blockchain-based organizations and developers distribute free tokens to their members. This is usually part of their marketing campaign. These free tokens are what we call Airdrops in the crypto space.
Why do Airdrops Exist?
Crypto projects give out airdrops to their community members once in a while. They do this by issuing tokens to users from the start. Usually, it’s because they need to raise awareness for their startup, initiative, or service. The team may boost their project. Plus, it ensures that a fair share of tokens gets distributed among its community.
Also, receivers of these airdrops would help raise awareness for it. They would also help the project reach more investors. The more people interested in the token, the more likely it is to appreciate.
Moreover, crypto projects use the launch of their airdrops to gain popularity as these launches take place on social media and cryptocurrency forums.
A legitimate airdrop will never ask users to invest their money. Rather, it’s a way for crypto organizations to stand apart from competitors—those who seek external funding before releasing their tokens.
How do Crypto Airdrops Work, and are They Safe?
Crypto airdrops come in different forms. It could be;
- Users get an airdrop when they perform certain social tasks.
- A blockchain could distribute tokens to holders with a specific asset or balance. For instance, the project will distribute the airdrop to you if you have a balance of 0.1 Axie or less.
- Using a smart contract, a blockchain takes early snapshots of users’ wallets. Then users can claim their airdrop tokens from the project’s website
But, despite their popularity, crypto airdrops aren’t always as risk-free as they appear.
Some of these airdrops are pump and dump schemes. The developer would create a token in the hopes of generating enough interest. When tokens begin to trade, they sell a large chunk of their holdings, causing the price to plummet.
To get a user’s wallet details, a scammer will send a small quantity of cryptocurrency to them as an airdrop. Then he studies the wallet transaction history to identify who owns the wallet. Thus, airdrops could be unsafe through the so-called dust attack.
Finally, the IRS sees airdrops as income streams, so you’ll have to pay tax on any amount of “free tokens” you receive. Whether you wanted the airdrop or not.
Conclusion – What is an Airdrop
Many airdrops exist in the crypto space, almost as many as the new projects that come up every day. But you can’t trust most of them, and one has to be cautious not to lose all their hard-earned money. Other ways to earn crypto without having to pay for them includes crypto mining. Click here to know more