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Airdrops: What You Need to Know ?

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The rapid rise in the popularity of cryptocurrency has ushered in some new ideologies, concepts and even some new terms that are used to describe various aspects related to cryptocurrency.

If you have been following any content related to digital currencies, then there is a likelihood that you have come across the term “airdrop.” Just like the name suggests, there is the involvement of something being dropped to a specific place. In the case of cryptocurrency, Airdrops refer to the process through which cryptocurrency tokens are distributed free of charge to the wallets of users by any organization that runs a cryptocurrency. The users are holders of a specific digital coin on a blockchain.

Airdrops are often carried out by blockchain startups to kick off their cryptocurrency projects and the tokens being distributed are often the result of a process called a “hard fork.” However, they are not just limited to blockchain-based startups but can also be carried out by digital wallet services and crypto exchanges. Airdrops can be categorized into those that are announced and those that are launched as a surprise.

Most of the already well-established cryptocurrency companies usually announce the airdrops beforehand so that they get the attention of investors. Users are often required to complete various tasks as part of the qualification process for the airdrop. The qualified users receive free tokens on the announced date at which the airdrop was scheduled.

Advantages of airdrops

  • As a means of creating awareness about a new digital coin

There are a lot of cryptocurrencies that currently exist in the market and this means that a new cryptocurrency may not be noticed especially if not well-marketed. Creating hype within the world of digital currency is just as important as any other form of marketing to get people interested. Airdrops are thus ideal when it comes to spreading awareness about a cryptocurrency as well as getting them interested in it. The cryptocurrency can be marketed in a variety of ways including word of mouth or social media. Bitcoin Cash is one of the most successful airdrops of all time. It was formed after a Bitcoin fork, after which the holders of Bitcoin were rewarded Bitcoin Cash on a 1:1 ratio. Bitcoin Cash ended up becoming one of the major cryptocurrencies in the market.

  • Airdrops are a form of giving back to loyal customers

Wallet services, trading platforms, and crypto exchanges may use Airdrops every once in a while as one of the ways in which they give back to their loyal customers. They may opt to give free tokens to loyal users and they also do this as a strategy to encourage customers to continue using their platforms. This is somewhat similar to gift vouchers and discounts that are often given to customers by companies in the commercial arena.

  • An Airdrop can also be used as a lead database generator

Anyone who has been involved in marketing knows that leads are a vital component of success to any marketer or organization. Blockchain-based companies have realized that they can take advantage of airdrops to create important lead databases. Users are requested to complete some online forms for which they are rewarded with free digital tokens. The information that is provided through the forms is then used to develop marketing strategies that focus on specific targets. Non-blockchain enterprises can also generate lead databases through the use of airdrops.

Airdrops have various advantages that encourage their use. These advantages include:

  • Wider distribution of the digital asset

Prior to the use of airdrops, Initial Coin Offerings (ICOs) were the popular way of distributing coins or tokens. However, this was not as effective because the tokens would only be purchased by a limited number of people and there was low awareness. However, airdrops provide a wider reach to a bigger demography.

  • More awareness

There is a sense of more engagement and awareness that is associated with giving tokens to users for free rather than letting them buy them. This is because it allows them to focus on the token that has been awarded to them more keenly. It also eliminates the user’s burden of having to decide whether to buy or not. Once a token has been airdropped, users can decide whether they want to sell the token, take a hold position, or purchase more of it. The advantage is that at the end of it, more users will want to know more about that particular project.

  • Raising funds

ICOs are not always the best ways to go when deploying a cryptocurrency. This is especially considering the fact that there are a lot of regulatory issues to consider and fraud concerns which would affect the success rate of the launch.  A better strategy would be to airdrop a specific amount of the new coin to the holders of Ethereum or Bitcoin and leave some of the coins for future sale or future developments.

  • Minimizing regulatory risks

As mentioned before, ICOs are currently subject to a lot of regulatory requirements especially due to the fact that they deal with cash. Governments tend to be very keen on anything that is bringing in a substantial amount of cash in the form of capital or revenue. The strict regulation is also due to the fact that scammers have also been using ICOs to make some quick cash at the expense of innocent people buying into those ICOs.  Airdrops offer the most effective alternative that makes it possible to bypass all the regulatory risks.

Still, it is widely expected that the SEC and CFTC will put a regulatory framework in place in the United States to regulate airdrops, although it is not entirely clear how those rules will be implemented at this time.

One might think that the free nature of airdrops means the developers are simply being nice by offering free tokens to users. However, it is simply a strategy that is aimed at providing free advertising to people within the cryptocurrency community and also, it is a strategy that is aimed at increasing the value of the cryptocurrency. People tend to buy more so that they can take advantage of any price increase in the future. Cryptocurrency holders have a lot of inceptives to hold cryptocurrency because the more cryptocurrencies they hold, the higher their chances of receiving more through airdrops.

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