Free Money – the What and Why of Airdrops

Posted on May 18, 2019

By Natalie Lord

Imagine coins falling, like droplets, from the sky. This is what airdropping is in the crypto sphere. Historically, it refers to planes dropping emergency or essential supplies in times of war or when there’s been a natural disaster, but not in the world of crypto. There’s it’s raining money!

Crypto airdrops refer to a process where a cryptocurrency company distributes cryptocurrency tokens into the wallets of some users without charge. Typically, airdrops are carried out by blockchain-based start-ups to boost their visibility. However, they’re also undertaken by cryptocurrency exchange platforms and wallet services.

Airdrops happen for a number of reasons. A primary reason is to reward user loyalty and as an incentive to encourage continued patronage. This is comparable to the points, voucher or discount systems that many non-blockchain companies use in the commercial arena.

Another reason is to generate lead database. Users applying to take part in the airdrop are asked to complete online forms containing valuable information which will be used to develop targeted marketing strategies. This exercise is also used by non-blockchain companies.

If you’re launching a new cryptocurrency, what better way to get people talking about it than by giving some of it away for free! The cryptocurrency market is immense, and a new currency can potentially go completely unnoticed if it isn’t marketed effectively. This happened with the launch of Bitcoin Cash.

After the fork that led to the creation of Bitcoin Cash, the developers rewarded all its users in an airdrop. They gave a corresponding amount of Bitcoin Cash for every Bitcoin held by a participant. The result was that in a matter of a few weeks Bitcoin Cash was ranking among the top 10 cryptocurrencies in the world.

Airdrops have also been effective for fundraising. Companies allocate tokens for an airdrop, which initially reduces capital. But as the airdrop campaign gains momentum and visibility and interest increases, the perceived value of the tokens goes up. Even if it only rises by a small percentage, that’s significant enough to create a notable overall gain.

It’s effective to use airdrops to achieve wider distribution and even distribution. In a situation where companies are built upon a parent blockchain, the blockchains are relatively well distributed. But companies can take advantage of that by airdropping their tokens to the holders of the parent blockchain token. If this happens, users can end up with a disproportionate holding of tokens. The solution is for a company to carry out an airdrop to even out the number of tokens held by various parties and realize wider distribution.

When Brendan Eich’s brainchild, the BAT ICO happened, one large investor took control of 20.7% of the BAT tokens in existence. Worse than that, it turns out that only five accounts owned more than 50% of all the BAT tokens. This goes against the very point of cryptocurrencies, which is that they are supposed to be decentralized.

We’ve seen that airdrops exist to serve a number of purposes. But regardless of why they are carried out, no one can complain at being given free money. Airdrops are a win-win for all involved.




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