Blockchains and cryptocurrencies continue to challenge traditional ideas around finance. Project developers have leveraged these innovations by introducing new ways to market and advertise. Airdrops are one of these recent developments that help promote cryptocurrencies.
What Is an AirDrop?
An airdrop deposits free cryptocurrency into wallets of early adopters. Investors that purchase a cryptocurrency in the beginning stages are rewarded for their loyalty. Everyone loves free money, and as a result, awareness and excitement are generated around a project.
Note: Apple also has a feature on iPhone, iPad, and Mac named AirDrop. Apple’s AirDrop feature has nothing to do with cryptocurrency and is something completely different.
Types of Airdrops
Proactive airdrops provide free cryptocurrency from the beginning. Investors can use websites like airdrops.io to find projects that promote free cryptocurrency at a specified launch date. The idea is that by purchasing early, word will eventually spread, and more people will begin to buy the cryptocurrency. Prices rise and those that got in early are rewarded.
Retroactive airdrops occur at a later date and are often by surprise. Users of a cryptocurrency can wake up one day and see a new cryptocurrency in their wallet. This is what happened to investors who purchased the famous Bored Ape Yacht Club NFTs. Those that held a Bored Ape at any time, regardless if they sold it, were rewarded with a new deposit of APE coin. Forgive the pun, but this airdrop was literally a token of gratitude to those that helped make the Bored Ape Yacht Club NFTs so popular.
Despite sounding like an easy way to make some money, airdrops are typically too good to be true. Just like any other cryptocurrency, these airdrops are susceptible to rise—and especially fall—in value.
Projects use airdrops to entice investors. More often than not, these projects provide no real long-term utility. They use airdrops to attract attention and create discussion. Put simply, most can be scams.
Usually a small group of developers who created the cryptocurrency promote an airdrop to try and cause the price to increase dramatically. An airdrop that is advertised effectively, even without true utility, could attract investors to purchase and drive up the price. Developers then sell all of their holdings and investors not a part of that original group are left with no money.
A Final Warning
Be extremely cautious when looking for airdrops. The vast majority will not hold value. In addition, some of these airdrops will require you to submit personal information like an email. If more information is asked of you, be careful. Most importantly, never provide your private keys. If someone has your keys they can access all of your funds.
There are some legitimate airdrops out there. The APE coin airdrop is very recent but might be here for the long haul and provide some true utility in the Bored Ape Yacht Club community. There is speculation that holders of APE will be allowed to vote on community topics, just like a governance token.
Airdrops can be a mutually beneficial way to explore the crypto world. Developers can find new use cases and early adopters can benefit from increases in price.
There is a need for caution, though: Not all airdrops are lucrative. Most are scams and have no long-term utility. Do your research, never give out your keys, and always be skeptical of new projects.