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What is an Airdrop and Why Crypto Airdrops are Issued

Updated: May 23, 2023, 11:32 AM

Crypto Airdrop

Users who interact with new and existing platforms regularly will likely receive an airdrop at some point. So what is an airdrop?

What is a Crypto Airdrop?

Blockchain-based organizations and developers distribute free tokens to their communities as part of a larger marketing campaign. These free tokens are what we call Airdrops in the crypto space.

Why do Airdrops Exist?

Cryptocurrency projects carry out crypto airdrops to raise awareness of their blockchain startup, initiative, or service. The team may boost its project and ensure a fair distribution of tokens among its community from the start by issuing tokens to users.

Besides, once the token begins trading on an exchange, recipients of these tokens are incentivized to raise awareness and help the project reach a larger audience. The greater the interest in the token, the more likely it is to appreciate.
Moreover, promoting the launch of a crypto airdrop on a project’s website, cryptocurrency forums, and social media is a common way for crypto projects to gain popularity.

Users will never be asked to invest their money in a legitimate crypto airdrop. Rather, it’s a way for crypto organizations to stand apart from competitors who seek external funding before releasing their tokens.
How do Crypto Airdrops Work, and Are They Safe?

Crypto airdrops come in different forms. It could be;
• Users get an airdrop when they perform certain social tasks.
Tokens get distributed automatically to holders with a specific asset or balance on the blockchain holding the airdrop. For instance, the airdrop will be given to you if you have a balance of 0.1 Axie or more.
• Using a smart contract, customers can claim their airdrop tokens from the project’s website by taking a blockchain snapshot earlier.

However, despite their popularity, crypto airdrops aren’t always as risk-free as they appear.

Some of them are pump and dump schemes. More precisely, the developer creates a token to generate enough interest for it to be listed on an exchange. When tokens begin to trade, they sell a large chunk of their holdings, causing the price to plummet.

Another way airdrops could be unsafe is through the so-called dust attack. To get a user’s wallet details, a scammer will send a small quantity of cryptocurrency as an airdrop. The attacker then tricks the wallet tokens’ transaction history to identify the person or organization behind the wallet.

Finally, because airdrops are considered income by the IRS, you’ll have to pay tax on any amount of “free tokens” you receive, regardless of whether you requested the airdrop.

Conclusion – Crypto Airdrops

There are a lot of airdrops in the crypto space, almost as many as the new projects that come up every day. But not all of them are legit, and one has to be cautious not to lose all their hard-earned money.