Cryptocurrencies: what is an airdrop?

An airdrop, in the cryptocurrency industry, is a marketing activity adopted by crypto issuing organizations to promote their crypto project and tokens. The airdrop consists of the free distribution of a native cryptocurrency to the wallets of current or potential users. There are different types of airdrops, and the requirements to participate and how they are launched may change.

In addition to what a cryptocurrency airdrop is and how it works, questions that we answer clearly and in-depth in this guide, one aspect that users question concerns the security and legitimacy of this type of promotional activity.

It may not be easy to say whether an airdrop is safe or not: a lot depends on the type of crypto project and who is behind it. As a general rule, users should always be cautious and do their research before redeeming cryptocurrencies received via airdrop or interacting with those that have arrived in their wallet. Here are all the useful things to know.

What is a cryptocurrency airdrop

As mentioned, a cryptocurrency airdrop is a marketing strategy that consists of the massive, unsolicited, and free sending of tokens or cryptocurrencies to many wallet addresses by companies and platforms to launch or promote their own project based on blockchain. By distributing tokens to community members, developers aim to encourage the use of their platform.

This is what an airdrop is: nothing more than an advertising initiative in which the user who owns a crypto wallet obtains cryptocurrency without buying it. A company can decide to launch an airdrop as part of an initial offer or as a reward for an action performed (for example subscribing to a newsletter, or following a project’s social page).

Platforms can also decide to launch governance token: in addition to the monetary value, governance tokens give their holders voting rights and the ability to influence decisions relating to the development of the project.

How does an airdrop work?

There are different types of airdrops, but the operation is similar as they consist of the free distribution of cryptocurrency to different wallets (usually Ethereum or Binance Smart Chain).

The standard, or random airdrop, sees the transfer of some native coins or tokens into existing wallets to promote a new blockchain project and incentivize more and more people to adopt its native cryptocurrency.

In this case, you don’t need to do anything to participate in the airdrop: anyone with a wallet can receive tokens. If you find tokens in your wallet that you did not purchase, they likely come from an airdrop initiative.

Another type of airdrop is based on the historical use of the platform and requires the user to meet certain criteria or have performed certain actions. An example is the Uniswap airdrop, which sent 400 UNI to anyone who had used the protocol before September 1, 2020, as a reward for helping the project grow.

The launch of tokens in exchange for simple gestures that help broaden the audience of fans and make the brand popular is much more frequent. In this case, users participate in the cryptocurrency airdrop if they Like, follow a page, share on social networks, sign up for the newsletter, and so on. Then there is the case of airdrops in which you can only take part if you have a minimum amount of cryptocurrency in your wallet.

Although less common, some projects give away NFTs instead of traditional cryptocurrencies.

What are cryptocurrency airdrops for

As mentioned above, blockchain projects give out free tokens to gain wider adoption and grow their network. The more token owners there are, the more value the network in question acquires. Airdrops are also an incentive for investors to use and promote the token. For startups, an airdrop is a way to make themselves known and attract the interest of investors and users around a new project.

One type of airdrop that has gained popularity in recent times is that offered by DAO (Decentralized Autonomous Organizations): completely decentralized autonomous organizational structures, increasingly used by blockchain projects to regulate their internal decision-making processes. Many DAO-run decentralized finance projects have performed airdrops of their governance tokens.

For example, in late December 2021, OpenDAO launched an airdrop of the SOS token for OpenSea users, increasing its value by over 1000% with approximately 240 thousand people claiming the token.

In the same period, another project, Gas DAO, started an airdrop rewarding with its token, GAS, all wallets that had spent more than $1,559 in gas fees on Ethereum before December 26th. To promote the initiative, the Gas DAO team tweeted:

“There are over 143 million unique addresses that have made a transaction on the Ethereum network. Gas DAO was created to be the voice and heartbeat of the 643,000 most active users of these 143 million, to unite the Defi, dApp, and NFT communities”.

Cryptocurrencies: is an airdrop safe?

While airdrops typically arouse excitement and create a lot of anticipation, you shouldn’t get carried away by the euphoria of getting free cryptocurrencies. Making sure the company promoting the airdrop, project, or blockchain service is safe and reliable is the first thing to do.

But how do you know if a crypto airdrop is legitimate or a scam? The number one rule is to do research and inform yourself well: DYOR (“Do Your Own Research”), as they say in cryptocurrency jargon.

If you can request tokens via airdrop, you should first inform yourself well about the origin and distribution of the project and understand whether it is a valid product.

Let’s see some risks that can hide behind crypto airdrops and how to protect yourself.

First, an airdrop could be a Pump and Dump pattern or a rugpull. In this type of scam, the creator issues a token and promotes it via airdrop. The price is inflated, often in a coordinated way between multiple parties, creating hype to the point of seeing it traded on less selective decentralized exchanges. Unwary investors flock to it, purchasing the tokens in the perception that the value will skyrocket. Once his goal is achieved, the creator liquidates his tokens or exchanges them for other cryptocurrencies, causing the price of the token to collapse.

Another risk is dusting attacks. A dusting attack is a cyber attack on the blockchain with which hackers undermine the privacy and pseudo-anonymity ensured by cryptocurrencies. It involves sending small amounts of cryptocurrencies and tracking the transactional activity of these wallets to discover the identity of those who own them. The sum is so small that most users don’t even notice it (hence the term dust).

Users who are victims of airdrop scams may receive tokens in their wallets and when they try to transfer them to an exchange or another wallet, their account is drained. In other cases, scammers announce a fake airdrop that leads to a phishing site: the bad guys will lead you to connect your wallet to a site that looks like the original one but which actually steals data and funds.

To avoid falling for scams related to cryptocurrency airdrops, you must always make sure to check the project’s official website and social channels, looking for information on forums and groups of expert and passionate users. If you cannot find useful information on the web and among members of the crypto community, it is better to ignore the airdrop. Keep in mind that legitimate and serious airdrop projects never ask you to send cryptocurrencies to an unknown wallet address or share private keys.

Original article published on Money.it Italy 2022-06-15 09:30:00. Original title: Criptovalute: cos’è un airdrop?