What Is a Cryptocurrency Airdrop?

An airdrop, in the cryptocurrency business, is a marketing stunt that involves sending free coins or tokens to wallet addresses in order to promote awareness of a new virtual currency. Small amounts of the new virtual currency are sent to wallets for free or in return for a small service such as retweeting a post sent by the company issuing the currency.

A legitimate crypto airdrop never seeks capital investment in the currency. Its aim is purely promotional.

Understanding the Cryptocurrency Airdrop

In the cryptocurrency world, airdrop refers to a procedure through which a blockchain project distributes a free coin or tokens to the wallets of active members of the blockchain community. Tokens are worth some percentage of a bitcoin.

Airdrops are generally promoted on the company's website as well as on cryptocurrency forums.

Key Takeaways

  • The crypto airdrop is a marketing method employed by startups in the cryptocurrency space.
  • An airdrop is a delivery of a bitcoin or a token to the wallets of current cryptocurrency traders, for free or for a small promotional service.
  • The airdrop is meant to spread awareness and increase ownership of the currency startup.

The coins or tokens are sent only to current holders of crypto wallets, usually those of Bitcoin or Ethereum.

To qualify for the free gift, a recipient may need to hold a minimum quantity of the crypto coins in the wallet or may need to perform a certain task such as posting about the currency on a social media forum, connecting with a particular member of the blockchain project, or writing a blog post.

There are good and bad crypto airdrops. Beware pump-and-dump schemes.

The airdrop is a promotional activity typically performed by blockchain-based startups to help bootstrap a virtual currency project. Its aim is to spread awareness about the cryptocurrency project and to get more people trading in it when it lists on an exchange as an ICO, or initial coin offering.

Does an Airdrop Work?

Given the extreme competition among cryptocurrency startups, an airdrop is an attempt to stand out from the crowd. Some businesses devoted to crypto airdrops offer alerts to users and listing services to startups, plus a range of marketing services to fine-tune their airdrops.

As always, there are good businesses and bad in this space.

Advantages and Disadvantages of Crypto Airdrop Marketing

Pierre Rochard, the founder of Bitcoin Advisory, tweeted this warning that crypto airdrops can be pump-and-dump schemes. That is, owners of the cryptocurrency could be artificially inflating its value in order to make a quick profit. Rochard tweeted:

"Watch out for give away scams like this: 1. Instantly pre-mine tokens for yourself and your friends 2.Trade the pre-mined tokens with each other to pump price 3. Bait retail investors with a 'give away' of the tokens 4. Retail evangelizes the token for you, dump."

Michael J. Casey, chairman of CoinDesk's advisory board and an advisor at MIT's blockchain research initiative, argues in a post on a CoinDesk blog that some type of marketing is essential if a cryptocurrency is to succeed.

"A currency is nothing if it is not widely used. And that can't be achieved unless people make some cost-incurring effort to encourage widespread usage," he wrote.