Crypto airdrop is the free distribution of a new token to different wallets to boost the project’s initial growth and build the community. It’s a popular marketing strategy that a newly-launched project uses to promote a token and its utility to the crypto market. In addition, an airdrop event increases the recognition and awareness of its brand and products in the crypto sphere.
A cryptocurrency airdrop has multiple benefits as it helps build the relationships between the project team and the long-term communities. In a nutshell, the airdrop occurs when tokens are distributed free, usually in a small amount, though it contributes a lot to the crypto-related project.
How do Crypto Airdrops work?
Crypto airdrop is often scheduled in advance and works in two ways: registration-based and automatic transfers. Registration-based transfer requires users to provide their information and personal details to collect tokens. Meanwhile, for automatic transfer, tokens are automatically transferred to the recipients.
Users have to meet many criteria to receive free tokens, some of which include whether or not the account holder has:
- Registered for the airdrop
- Used the app, the product or the service
- Some amount of a specified token
- Finished the tasks required
Why Do Projects Organise Airdrop Events?
There are many reasons why companies or crypto-related projects decide to hold airdrop events. Projects can boost the community’s awareness of the products and services, thus increasing their chances of receiving funding. Airdrop is an excellent tactic to stand out amid the flourishing crypto industry, with many projects launched daily.
Participants are often required to complete some tasks to receive free tokens, though sometimes tokens are sent to recipients with no pre-conditions. For instance, the Flare Network gave out its Spark tokens to XRP holders on Ripple’s XRPL blockchain and asset holders on other exchanges.
Airdrops can act as a helpful catalyst for the token’s repaid adoption by promoting the project’s perceived integrity. For instance, the Uniswap decentralised exchange dispersed UNI tokens to its initial users to express gratitude towards and reward early adopters.
In addition, an airdrop event can be an effective method of gathering user base data. Specifically, most airdrops require participants to provide personal details such as email addresses, social media handles or opinions on the project. Therefore, the airdrop is a bidirectional awareness campaign that allows the project team to collect information to create better products and services.
UniSwap distributed airdrops to its early adopters. Image: publish0x
Common Types of Crypto Airdrops
Standard Airdrops
For standard airdrops, participants must sign up using their name and email address. Doing so will instantly set up an alert notifying them when the airdrop occurs and provide them immediate access to the virtual event.
Exclusive Airdrops
As the name suggests, an exclusive airdrop is intended for community members who have shown their commitment to the platform by frequent participation. These members may be the most active in discussions, contributors to the project, etc. The eligibility requirements for each project may vary.
Hard Fork Airdrops
A new chain branch is created when a blockchain undergoes a hard fork. This includes generating a new token to differentiate between the two co-existing chains. During a hard fork, holders of the original digital asset get tokens for the new chain through an airdrop.
Bounty Airdrops
Promoting a new project requires personnel, and reward airdrops are an excellent method to build a community. To be eligible for this airdrop, users must fulfil particular activities, such as promoting the initiative on Twitter using specific hashtags.
Holder Airdrops
In an industry as competitive as blockchain, it is crucial to make your existence known to prospective consumers. Holder airdrops disseminate tokens to the holders of other tokens. In an EOS-based airdrop, for instance, users who have EOS tokens would be eligible to get the additional tokens. The quantity they receive may depend on the number of EOS tokens they already possess.
Are Crypto Airdrops Worth It?
Functions of a crypto airdrop. Image: Masterthecrypto
The Ethereum-based Uniswap DEX airdropped UNI coins to its customers for free in September of last year. Based on the conversion rate at the time, the value of the tokens was over $1200. These tokens are roughly 10 times more valuable at the current exchange rate. Airdrop participants can reap great benefits when joining certain bitcoin airdrops.
Recently, the cryptocurrency-focused development community Gitcoin announced an airdrop of 15 million GTC tokens to the first GMV holders. At current prices, the tokens airdropped might be worth at least $200.
ShapeShift recently announced that it would undertake one of the greatest airdrops in crypto history to decentralise its whole platform. The objective is to transform the platform into a decentralised autonomous organisation (DAO) by airdropping approximately 340 million FOX tokens to stakeholders depending on their holdings.
Is Crypto Airdrop Subject To Tax?
The United States Internal Revenue Service (IRS) taxes income from airdrops as regular income; therefore, anybody holding airdropped coins must pay taxes.
The tax amount is determined by the fair market value of the token at the time of the airdrop. This is important for bitcoin wallet holders. By owning these coins, you may be required to pay taxes on that revenue. Check the “other income” section of your IRS Form 1040, where this income is listed as “other income.” This differs from IRS Form 8949, which regulates capital gains from the sale of cryptocurrencies.
Conclusion
Depending on the projects, airdrops of cryptocurrencies might be lucrative. A wise tactic is to compare the possible advantage against the eligibility requirements. Before committing to a project or investing, it is vital to undertake extensive research.
