What are Airdrops?

An airdrop for a cryptocurrency is a procedure of distributing tokens by awarding them to existing holders of a particular blockchain currency, such as Bitcoin or Ethereum. It can also be considered a marketing strategy, since its goal is usually to spread the word about a certain product, coin or exchange in the world of cryptocurrencies. Lately this strategy has become increasingly important due to various social networks, most notably Facebook, refusing to allow ads promoting various virtual coins. In the United States, the practice has raised questions about tax liabilities and whether they amount to income or capital gains.

Airdrops are the crypto analog to free samples in the shopping mall. Projects that are just starting out will oftentimes give out a small amount of free tokens to verified people in order to spread the word about their project. They often do this near the time of their ICO.

 

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Airdrop samaple

 

Cryptocurrencies only hold value because people believe in them and recognize their worth. The more people who own a cryptocurrency, the more likely it is to become widely adopted and rise in value. Airdrops are effective due to the “endowment effect”. That is a phenomenon in which people will ascribe value to things merely because they own them.

One main reason for doing airdrops, are recent marketing restrictions for ICOs, that are real and painful in equal measure. The companies launching their ICOs can’t use either Facebook or Google to market their projects. So, the best way through which a project can create lasting exposure and hype is airdropping.

There are plenty of reasons why ICO’s give away free tokens in an Airdrop, and here are the main ones:

  • To Raise Popularity: Getting token to as many wallets and people as possible. It is an useful tool for building a strong base of active users, who might end up being real customers. Wide range of distribution is typically the important metric, particularly given that many projects are trying to jump-start a network effect.
  • To Raise awareness: A lot of monetary interest is built once the token hits exchanges.
  • To Raise capital: To fund the future development and build-out of the project.