What is an Airdrop?

Have you ever noticed a sudden increase in coins in your cryptocurrency wallet? Amid the excitement, have you ever wondered where these free coins came from? Chances are, it’s because of an airdrop. Yes, it’s like free money.

Airdrops can occur in various ways, such as during forks or new ICO purchases. Sometimes, well-known companies, like Binance, give away free tokens. Airdrops can also be part of a project’s strategy to boost a token’s popularity. But what exactly is an airdrop?

What’s an Airdrop?

In the crypto world, an airdrop is essentially a marketing strategy where free coins and tokens are sent to people’s wallets to promote a new cryptocurrency project or token. A small percentage of the new digital tokens are distributed to active members of the crypto community.

These tokens are often free, or they may require a small favor, such as sharing the new virtual currency on their own platforms.

The primary aim is to create awareness and increase the popularity of the soon-to-be-launched crypto token. It’s also a way to attract more people to trade it when it’s listed on an exchange as an ICO (Initial Coin Offering).

There have been many significant airdrops in the past. One of the most notable was during the Bitcoin Hard Fork when Bitcoin Cash distributed an equivalent amount of Bitcoin Cash (BCH) to existing Bitcoin holders. For example, if you held 0.5 Bitcoin at that time, you received 0.5 Bitcoin Cash. Pretty sweet, isn’t it?

Why Do Airdrops Occur?

The question remains: Why would someone give away free tokens to random people? Why would a team that has worked on a valuable token choose to release so many tokens for free?

Let’s think about it this way: You’re in a dessert shop in your favorite shopping complex, and an employee offers you a sample of an attractive dessert. There’s no harm in trying the sample; it’s free. After taking a bite, you find it tastes even better than it looks. Now you’d want to try more, wouldn’t you?

The same principle applies to the crypto domain. Spreading awareness is crucial when launching a new token or project. Psychology plays a critical role in airdrops. Buyers tend to invest in products or tokens they are familiar with or have “tasted the sample.” Therefore, those in charge of token distribution see airdrops as a way to let people taste their “dessert.”

Advantages and Disadvantages of a Crypto Airdrop

Airdrops are an attempt to engage the crypto community, given the intense competition among blockchain startups. Many crypto businesses notify their users about upcoming airdrops. However, there are several aspects to consider before participating in an airdrop.

Advantages:

It’s fun for recipients who enjoy receiving free tokens, especially if their value may increase.
A promising way to build loyalty and popularity before a token’s launch.
Initial marketing costs are generally low.
An exciting fundraising method.
Can attract large buyers and potential millionaires.
Disadvantages:

Some recipients may sell their tokens immediately, causing a sharp decline in the token’s value.
If too few tokens are issued, the impact on the community may be minimal.
Issuing too many tokens can dilute their value.
There’s no guarantee that airdrop recipients will later buy or support the token after its launch and ICO listing.
Running out of tokens during an airdrop may require buying them back from recipients. All in all, airdrops have proven to be an effective way to increase token popularity and are likely to continue doing so.