Many cryptocurrency companies are using token airdrops to gain the benefits of network effects. Just remember a few years ago, how internet companies used to chase user growth before profits! They understood very well that they needed a large network of users before there were any chances of making money. The best example is Facebook. Also, it’s like those carts that give away free cans of Coca-Cola. People who never tried Coca-Cola will be more willingly buying cans after they tried them for free.
In many ways, token airdrop has become an effective way for the crypto-initiatives to expand their network. They market their coins all of sudden by making the masses aware of it when it appears in their wallets out of nowhere. By doing so increases the awareness of brand new coin as well as its storage value. People indeed value those currencies that they own over they don’t own. Now just have a look over coinmarketcap.com. There are over a thousand crypto-coins on the list and it’s not possible to keep the track of every coin. However, by airdropping a new coin into the wallets, the initiative gets the attention of the masses. This strategy helps the company to stand out in the crowd, hence draw more and more people to join.
As you know that the airdropped coins are basically free money. Immediately after wrapping up the process, tokens are not available to trade on any exchanges. But once enlisted on a major exchange, the liquidity becomes higher as the coins are exposed to larger trading volumes. Furthermore, there is more room for the expansion of the coin value due to speculation, awareness and many other factors.
Let us have a clear look at why the projects choose to go this route to distribute their tokens and how you can benefit from it?
Airdrops are tokens that are sent to the chosen addresses. This is because the owner of the address chose to participate in some way that helps spread the word about the project. Then people get rewards with free tokens. However, in exchange for the free tokens, they ask you to participate in the promotion of their coin on social media platforms.
In many token airdrops, they urge people to join Telegram groups, download apps, like and share their posts all across Facebook and Twitter pages. By doing so, the initiative gains a strong online presence, massive community and a reliable platform to further promote their coins.
Sometimes they are sent to addresses simply because it was holding a minimum amount of another cryptocurrency. Basically, if you’re holding, say Bitcoin or Ethereum in a wallet, one day, you could check it out to find that you suddenly have other tokens that you’ve purchased, but now owned.
Most certainly, airdrops are great little gifts of value tokens in a long run. But there are some reasons to consider how airdrops might not be completely free tokens provider.
There are downsides too:
The main reason why projects decide to do token airdrops is the free marketing that they can produce. Just think that you’ve just discovered some new kind of tokens in your wallet and you have no idea about it. How much they are worth and what is their purpose? Now imagine thousands of addresses receiving those tokens through airdrop. It seems to be enough to get some attention going. Maybe they can go viral. Now, after you have searched it and mentioned it to your other friends who are also in a cryptocurrency domain. Actually, you’ve multiplied the number of people who have just heard the name of the token.
Scammy projects also exist. There are some projects which design their airdrops so that if you jump through certain hoops, they will reward you with free tokens. Some of these hoops may compromise your privacy and ask you for your email and personalized details.
Projects need to approve their value to establish a value for the token. Just someone airdrops don’t necessarily make those tokens valuable. There needs to be some excitement like some work actually being done and ideally have a working project or an MVP to prove the values for tokens.
How token airdrops are Beneficial:
Many projects are avoiding the ICO process and just giving their coins out for free with airdrops. Below are the reasons that state airdrop as a better marketing strategy:
- There is no danger of monetary risk to the recipient. If you get an airdrop from any project, you are not paying a lot of money upfront. You just get the tokens if they’re worth.
- The chances of unlimited upside because you invested nothing. You really can’t calculate the return on an investment when you didn’t pay anything for that investment.
- Rapid network growth if airdropped to a large distribution list. Although a company manages to gather a limited number of people, they can probably multiply the numbers by providing further giveaways to their existing members.
- The community establishes token value post airdrop. With a large number of participants, the storage value of coin increases.
Spotting an airdrop scam:
- If they ask you to send them cryptocurrency first.
- If they ask you to send them your private keys or seed phrase.
Do not participate if you ever come across a token airdrop requiring either of these. Read more such articles here.