The word “airdrop” is not new to most apple users. The same word is also being used in the crypto market. It is known as a crypto airdrop. It is important that crypto investors understand crypto airdrop and how it works.
What Is a Crypto Airdrop?
Crypto airdrops happen when a new crypto startup or crypto project widely shares a large number of its crypto tokens. These tokens are distributed to a massive list of crypto wallet addresses.
A crypto airdrop is a free token whose goal of distribution varies depending on the project. Although free, they should not be written off as being worthless. Bitcoin is a typical example. However, 1 BTC was worth more than $50,000 at a point in time.
How Crypto Airdrop Work
A blockchain airdrop works through the crypto wallet. The wallet lives on the blockchain. It is a project whereby the team or company behind it begins to collect crypto addresses during a pre-defined phase they announce. In most cases, this is manually done by users. To connect the wallet to the blockchain properly, the wallet is used in signing transactions.
However, the coins are airdropped for free in some cases. This is done without the user’s intervention. In many other cases, it is unknown to users that they will be receiving tokens. In rare cases, users may find out the coins that were airdropped to them are worth thousands of dollars.
Objectives of Crypto Airdrops
There are several reasons why crypto projects do airdrops. The motivations behind them are different. However, there are some common reasons behind some of them. Some of the objectives behind it are:
1. Attracting investments
One of the objectives of crypto airdrops is to motivate investors to support the project. Moreover, recipients are likely to invest in projects that will get them free money most especially in today’s economy.
Furthermore, airdrops are followed by token offerings in most cases. This could be in the form of IDOs, CEOs, ICOs, etc. These offerings are a clever way of promoting the project especially when it is a low marketing project.
2. Spreading awareness
Spreading awareness is perhaps the major reason why crypto projects do airdrops. As a result, more people know what project is all about. What the company needs to do is just to distribute a small portion of their coin.
In response to the distribution, they will get recognition and maybe support. The best airdrop users are probably active social media users. This is because they can promote the project easily with just their social media account.
3. Creating a community
Creating a community to support a crypto project is another reason behind crypto airdrops. Additionally, companies can collect data like social media accounts and email once the community is created.
Furthermore, the community may be required to fill a form asking for their view on the project. The project team can use the information they gather in targeting marketing campaigns for future events.
4. Rewarding loyal users
Some participants do not care about the long-term sustainability of a crypto project. They are only concerned about the highest ROI. Although not a scamper, this behavior can cause significant damage to the crypto platform.
Some companies will try to prevent this by conducting airdrops. Their airdrops will be aimed at rewarding loyal users who do not dump the token but hold on to it in their wallets for a certain period.
There are several reasons behind crypto airdrops. It might be a reward for following the social media page of the project, signing up for a newsletter, or bringing more attention to the project. Whichever one it is, you as a crypto investor must know how it works before signing up.