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Earning Passive Income With Crypto:What are Airdrops?

Earning Passive Income With Crypto:What are Airdrops?

What are Airdrops?

Airdrops are a method of distributing tokens to users. They are commonly used to generate buzz around a project, reward users for certain behaviours and or create a community. Not to be confused with ICOs which are used to raise funds for a project. They can be used to do a number of different things:

  • Reward loyal customers
  • Generate excitement around the project
  • Identify potential customers open to new products or services
  • Incentivize followers to perform certain tasks that help the project grow

It’s unclear who specifically came up with the concept of airdrops. OmiseGO, a banking service built on Ethereum, claimed credit for the technique in 2017 after it distributed its tokens to followers.

How do Airdrops work?

There are typically two different types:

Announced - With a fixed date and time frame for release. These are designed to generate buzz among the crypto community and often have specific tasks attached in order to be eligible.

Unannounced - these types of airdrops involve selecting wallet addresses and randomly dropping tokens without the user knowing where they came from. These are typically used to surprise and delight customers.

A cottage industry of forums has sprung up to help people discover how to take part in airdrops. Companies also use their own distribution channels like Telegram and Medium to inform users of upcoming drops.

Limitations with airdrops

As the popularity of airdrops has increased, so have concerns about its validity as a way of building a community. Some critics have claimed the indiscriminate nature for distributing tokens does little to foster an active community.

Many airdrop recipients hold on to tokens and do little to maintain and grow the network after the initial buzz wears off. In the US, the practice has raised questions about tax liabilities and whether they amount to income or capital gains. That’s where smart airdrops come in.

What are smart airdrops?

Smart airdrops are token distributions designed to target specific users. Similar to how marketing campaigns create user profiles in order to work out who its audience is and how to target them, smart airdrops are designed to only attract users the network wants.

How are they different?

Smart airdrops involve the project understanding the types of user it wants to attract before distribution starts. Considerations could be based on:

  • Location
  • Demographic
  • A user’s interests.

The future

Airdrops have become an increasingly popular form of marketing for blockchain projects. However, US regulation could make it difficult for American projects to offer airdrops.

A more considered approach to distributing tokens seems to be where the industry is heading. But for now, airdrop's popularity continues.