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What are Crypto Airdrops and How to Do They Work?

Crypto Airdrops

Airdrops is a marketing strategy that involves blog posts, social media promotion, and diverse levels of crypto holder participation. Blockchain-based startups use them to incentivize investors to acquire their tokens due to the challenges encountered when introducing new products. According to CNBC TV, though many people confuse Airdrops with Initial coins Offerings (ICO), they are not the same. While ICO serves the same purpose as Initial Public Offer (IPO) in the stock market of raising funds, Airdrops are primarily for promotional purposes. However, this promotion can still create awareness so that ICO becomes successful. Therefore, the company issuing Airdrops provides tokens or free coins to appeal to potential investors. There are some instances where fraudsters come up with fake cryptocurrencies and use Airdrops to entice and con investors. This works whereby new blockchain companies start by promoting Airdrops for their virtual currency on their cryptocurrency forum on the company’s website. To avoid being a victim, it is important to learn how Airdrops work.

Advertising a brand to capture more market and distribution

In the initial coin offer, there is the possibility of investors acquiring a bigger share. These are usually referred to as whales as they take the big share limiting the other interested investors from getting a share of the offer. This, in turn, creates the problem of poor distribution of cryptocurrency. This centralization of cryptocurrencies beats the whole idea of the operation of digital money, which works by ensuring that the crypto is decentralized as much as possible. According to Block Geeks, Airdropping solves the problem of centralization by dropping your token among the existing coin holders in proportional to their holdings. Since cryptocurrencies companies are established on the foundation of the mother blockchain, their digital money is already well known and evenly distributed. Therefore in case, you have a new coin, and want it also to be known or well distributed, by dropping the tokens on the shareholders of the parent blockchain, you will be able to achieve this through their established distribution channels.

Useful in your company's fundraising

Airdropping is a very effective method of raising funds for a digital money company. Many investors will be skeptical when launching a cryptocurrency due to the potential risk associated with a new offer. This may make them take a lot of time to assess and evaluate their options and these probable risks. Therefore, you may decide to have a proportion of your Cryptocurrency allocated for airdropping. This creates a market hype as more people hear of your free offer and especially the social media excitement, thereby creating an apparent value for your cryptocurrency. So just like in a normal IPO, this perceived value of your offering will cause the price to go high as the demand rises. Consequently, you end up raising more funds than you would have done with a normal launch.

The reward for subscribing to a bulletin

In a new project, you may find those shareholders who have become very loyal to the brand. According to Tax Bit, these types of loyal shareholders include those who have subscribed to your newsletter. This also means they are interested in following what you are doing and even informing their friends. The business of cryptocurrencies revolves about finding the best offer, and therefore it is usually hard to find a royal shareholder. So when you find one, most companies will look for means to keep them happy. This is where the idea of airdropping comes in as a reward to your royal shareholders by recompensing them according to the proportion of their share and how long they have been with you. Secondly, it also acts as an incentive encouraging shareholders to keep their digital currency for long.

Giving of governance tokens

You may also want to involve the shareholder in your project's governance. This will make them feel part of the project and not just raise funds. Therefore, you may decide to airdrop digital currency in their wallets not just for monetary benefits but as voting rights where the shareholders will not have benefits in terms of monetary value but also voting rights. This means that they can participate in the decision-making of the project. The idea also ensures that you have more royal shareholders as they take the brand as their own. In fact, those investors who have bought the bigger share of a project’s tokens will not be comfortable if they don’t have a say in the affairs of the project.

Establishing a database for potential or existing customers

Airdrops can also be used to get more information from your customers or obtain market needs for them. In this case, you are using it to establish your customers' needs instead of undertaking market research, which may be very expensive. Many people will not just give you information unless they see its benefits. The company will therefore request you to fill certain forms with specific questions. As a reward, they will airdrop tokens into your digital wallet hence mutual benefit for the brand and the one providing the information. The received information becomes useful in establishing market trends and undertaking a more focused marketing program.

Handling the issue of hard Fork

Forking is where the parent blockchain is diverged to provide various perspectives on the original transactions but within the same network. There are two ways this occurs, either as a soft fork or a hard fork. In the case of the soft fork, it means you want to update the chain, but it is still possible to enjoy the features of the old chain. However, for a hard fork, the opposite takes place, meaning that if you are in the new chain, you cannot enjoy the features of the previous one. You may therefore use airdropping to deal with the challenge of the hard fork. This will enable the holders of the previous cryptocurrency to transit to the new diverged blockchain and continue to enjoy the established and evenly distributed channels on the previous chain.

Allen Lee

Written by Allen Lee

Allen Lee is a Toronto-based freelance writer who studied business in school but has since turned to other pursuits. He spends more time than is perhaps wise with his eyes fixed on a screen either reading history books, keeping up with international news, or playing the latest releases on the Steam platform, which serve as the subject matter for much of his writing output. Currently, Lee is practicing the smidgen of Chinese that he picked up while visiting the Chinese mainland in hopes of someday being able to read certain historical texts in their original language.

Read more posts by Allen Lee

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