August 17, 2022

What is a crypto airdrop?

What is a crypto airdrop. There are over 18,000 unique crypto projects are listed on Coinmarketcap, and more are launching daily. With so much influx of new cryptocurrency, one might find it difficult to keep it with each new launch. As such, some new projects offer airdrops to people to create awareness.

In this guide, we’ll explain what a crypt airdrop is, how it works and how you can get one.

What Is A Crypto Airdrop?

A crypto airdrop is a process where new or existing crypto projects transfer digital assets to multiple wallets. These assets can range from tokens or coins to NFTs. The main idea is to create awareness of the project among current or potential users. 

Most airdrops are free. However, some projects require participants to complete a specific task before claiming it. 

How Does A Crypto Airdrop Work?

Crypto airdrops come in various forms, but they always involve the distribution of a small quantity of cryptocurrency to many wallets (usually on  Binance Smart Chain or Ethereum). Several projects choose to give out NFTs rather than normal cryptocurrency.

Some projects may distribute tokens without requiring anything in return, while others will require you to complete certain tasks prior to claiming. Among these tasks, you might have to follow a social media account, sign up for a newsletter, or keep a certain amount of tokens in your wallet. However, you’re not always guaranteed to win an airdrop.

In other circumstances, the airdrops are provided solely to people engaged with the project’s website before a specified date. 1INCH and Uniswap are prominent examples of this strategy to reward early adopters. However, unlike regular airdrops, they were valued in the thousands of dollars.

Even if you do not want to receive an air drop, there are tax requirements by the IRS and state tax departments. You must still account for crypto gains and losses and report them on your state and federal tax return. Use the services of a crypto CPA or crypto tax accountant like ResultsTaxAccountants.com to stay in legal compliance and avoid costly tax mistakes.

Different Types Of Airdrops

There are a variety of methods to perform a crypto airdrop. Aside from the traditional airdrop, which distributes digital assets to many wallets, there are a few variations. Bounty, exclusive, and holder airdrops are common examples.

Bounty Airdrop

This type of airdrop requires participants to complete a task. They may require you to sign up to their Telegram group, like them on Facebook, retweet something about the project, etc. Once completed, they’ll ask you to fill out a form with your wallet address. They’ll also ask you to add proof that you’ve done the required action.

Exclusive Airdrop

In an exclusive airdrop, a project distributed tokens to selected wallets. This is done to reward people who already have a longstanding history with the project. For example, if you’ve been an active community member for a long time, you’d probably receive a higher chance of winning an airdropped token than someone who joined recently.

Holder Airdrop

Similar to an exclusive airdrop, except you don’t need to do anything special. You simply have to own a certain amount of tokens at a given time. The team usually takes a snapshot of the wallets holding a particular token. If the wallets meet the minimum requirement, they’ll get the airdrop.

How to Claim An Airdrop

The process of claiming an airdrop varies depending on the project. Some projects will provide instructions on how to claim their airdrop. Others will only allow you to submit your wallet addresses after completing a set of actions. In either case, you should make sure you’re eligible to participate and have a cryptocurrency wallet. 

How To Avoid Airdrop Scams?

Airdrops are great ways to introduce new users to blockchain technology. Unfortunately, scammers have taken advantage of this by creating fake websites and distributing phishing emails. To protect yourself against airdrop scams:

  • Never click on any link sent to you via email. Instead, go directly to the official website of the project.
  • Be careful when entering personal information into forms. Scammers often use these details to steal money.
  • Do not share your private keys. These can be used to access your funds.
  • Always use a burner wallet when participating in an airdrop.

Final Thoughts

Crypto airdrops are one of the best ways to introduce new users to the world of cryptocurrencies. While some projects distribute free tokens, others offer rewards in exchange for completing tasks. Regardless of your chosen method, it’s important to remember that you should never give away your private key. That way, you won’t lose control over your funds.