What is an airdrop? Key things to know about crypto airdrops: earnings, types, scams, risk factors

Airdrops seem like an easy way to earn free tokens. In reality, bounty hunting requires dedication, hard work, and wits to spot and avoid shady schemes.

Crypto airdrop

Airdrops are one of many ways to make money in the crypto market. They provide users with the opportunity to earn free cryptocurrency, which may – or may not – grow in value. For businesses, they're a marketing tool that can work wonders if used properly. It may seem like a win-win situation, but frequently it's not. There are several things you should be aware of before you get hyped about airdrops.

How does an airdrop work?

Historically, the term "airdrop" refers to delivering supplies or people by parachute from military aircraft. Crypto airdrops require much less hassle and are emission-free (well, not really, if you go into detail). As the name may suggest, they are giveaways in the form of small amounts of crypto coins or tokens. Assets are sent directly to the wallets of hundreds or thousands of recipients by crypto companies looking to highlight their product, typically a new cryptocurrency or a DeFi protocol. Airdrop goodies are distributed for free or in return for a small favor, such as:

- retweeting a promotional post,

- following a social media account,

- creating a user account on a platform,

- writing a blog post,

- signing up for a newsletter to receive updates, etc.

What are the goals of an airdrop?

From the user's perspective, airdrops are almost-free giveaways. From the business angle, they are a marketing strategy or, as Dustin Teander, Messari analyst, aptly put it in a commentary for The Defiant, "an expensive customer acquisition tool that hasn't proven to lead to long-term users." Indeed, many companies succeed primarily in generating buzz, which attracts temporary interest but doesn't necessarily translate to long-lasting business results. Still, the effects may depend not only on the quality of the airdrop campaign but also on the intentions of its organizer. Essentially, airdrop goals fall into three categories:

- promoting new projects to attract users and money,

- rewarding community members to enhance loyalty and secure customer retention,

- pulling a scam.

A recent example is Blur's campaign. The looming OpenSea's competitor, launched in October last year, offered new users "care packages" containing an undisclosed amount of Ethereum-based BLUR tokens. The airdrop's goal was primarily to attract following rather than encourage loyalty of existing customers, considering the company's young age.

On the other hand, in a follow-up move, the same company announced a Season 2 airdrop, emphasizing loyalty. In practice, the approach bordered on being a takeover airdrop, as the primary condition was not having listings on competing platforms (hint: OpenSea).

A prime example of a loyalty airdrop is the NuNet NTX token airdrop announced in 2021 and scheduled for four airdrop periods in 2022. The campaign was aimed at long-term AGIX token holders that could prove their interest in the project. NuNet is a subsidiary of SingularityNET, the company established "with the mission of creating a decentralized, democratic, inclusive and beneficial Artificial General Intelligence."

As regards the latter airdrop category, we'll get back to it later in the article.

How much can you earn from airdrops?

Airdrops can earn a company serious hype and boost its trading volumes. In March this year, Arbitrum, a leading layer-2 scaling solutions provider, announced its new token airdrop dedicated to its community members.

The campaign marked the company's transition into a decentralized autonomous organization (DAO), enabling token holders to vote on key governance decisions. Shortly after the announcement, the transaction count shot up, growing more than five-fold. The effect wasn't particularly long-lasting, but the daily transactions number still floats high above 1000k, which wasn't the case before.

Arbiscan daily transactions
Source: Arbiscan.io

Airdrops can also drive tens or even hundreds of thousands of crypto geeks to sign up to a platform or follow its social media channels, which can then be monetized in various ways.

But that's a business perspective. And how about users?

The answer, as usual, is: it depends. Some time ago, Yahoo Finance ran a story about airdrop bounty hunters who are able to make a living on crypto giveaways. The catch is it's more likely when you're based in Bangladesh than in, say, Switzerland. In the former, the average wage is around $5. That's why Abu Bakkar Siddik, a Bangladesh native, was able to make enough from the Kick ICO airdrop to buy a house. His crypto-savviness was crucial, but so were the "broader economic factors."

Read also: Tidex: up to $10,000 for bug bounty hunters

Another example comes from Nigeria. Oladele Olanrewaju, who started bounty hunting after the crypto market nosedived in 2018, landed a gift of 222,222 Hydro's native tokens. Shortly after, he made $1500 selling the assets after the project launched and the prices spiked. On average, Olanrewaju was making around $150 a month in 2019 during the crypto bear market.

It's nowhere near the $25,000 made by Ayub Emon, another Bangladeshi, who helped in marketing Dago-Mining's ecology-focused cryptocurrency project in 2017–2018. In the following year, when the crypto market was at the bottom, Emon made $3000, which seems not too bad for a side gig in bearish circumstances.

In general, if you know your whereabouts in the crypto world, can spend some time on bounty hunting, and good fortune has your back, you can make up to a few hundred bucks a month. Most likely, it's not going to be a steady income. You may earn $500 one month and a tidy zero the next one. You can significantly increase those numbers if you want to make a full-time job out of airdrops. Still, the long-term outcome depends on numerous circumstances where luck is vital. So is the domain knowledge, as making a serious income on giveaways will probably require reinvesting the assets in the cryptocurrency market.

However you approach the subject, remember to constantly keep your wits about you because the third option of investing your time and energy in airdrops is loss. That is, if you get mixed up in a scam, which is not a rarity in the airdrop business. Again, we'll get back to it later.

What are the types of airdrops?

Crypto projects vary with regard to their means and ends, and so do airdrops. It's possible to single out several types of giveaway campaigns depending on the criteria you want to apply. Commonly, though, airdrops are classified into three to six categories, which we cover below, adding one more to keep things creative.

Standard airdrop: no tasks required

This one is pretty straightforward – you can get tokens for nothing on a first come, first served basis. In other words, the issuer doesn't require any action from you other than setting up an account and being quicker than others. You simply need to make it to the money tap before it runs dry.

Bounty airdrop: some tasks required

Bounty airdrops are a bit more demanding. To qualify, you need to participate in promoting the project by completing certain tasks like following its social media channel, joining its Telegram group, retweeting news, posting on Instagram with relevant tags, signing up for a newsletter, and so on. Sometimes it's a lengthy to-do list to check off, sometimes a formality, and sometimes – something in between.

Exclusive airdrop: for selected individuals

Airdrop can be classified as exclusive when only selected users are awarded tokens, typically based on their engagement in the project. The criteria vary and may include time spent on a project or level of forum activity prior to a specified date. Exclusive airdrops are granted regardless of a user's holding status.

Holder airdrop: for crypto holders

In a holder airdrop, you're eligible for a reward if you already have a specified amount of a given cryptocurrency in your wallet. Your holdings are verified by a snapshot of your wallet taken on a specific date or in a fixed period. The idea is that you get rewarded with more tokens for already having a threshold amount of tokens indicating your commitment to the project.

Hard fork airdrop: after the branch-off

As the name suggests, hard fork airdrops are directly linked to hard forks – situations when a protocol branches off from the main chain splitting the existing network into two cryptocurrencies. This is frequently the case when users of a given blockchain disagree about governance issues, such as transaction rules or upgrades to the network. The "renegades" will offer users token giveaways to win them over for the new project. Typically, they'll provide their followers with an amount of a new currency corresponding to the amount of the original coin they held in their wallets.

Raffle airdrop: for random eligible users

When a startup announces an airdrop and receives an overwhelming response from the community, the bounty offered may not be enough to satisfy the appetites of everyone at the table. The company may decide to conduct a raffle to select a limited number of winners instead of handing out pennies to everyone interested. Usually, a promoter requires an "admission ticket" to a lottery, which users can earn by holding a certain amount of tokens or performing specified actions.

Takeover airdrop: "hijacking" users from the competitors

We've already covered this one (hint: BLUR tokens). When a crypto startup enters the market with a bang and a lot of funding, it may want to win over users from the competition. It can try to achieve this with a nicely tailored, loyalty-focused airdrop campaign (or, preferably, a series thereof), with a primary eligibility requirement of ditching other platforms or limiting one's activity in the competitors' environment (websites, applications, etc.).

Airdrop scams: how do they work?

To some, airdrops may seem like a honeypot, which they hardly are. For one thing, the financial gains they provide without hard work (being glued to your device's screen on the constant lookout for opportunities) are rather limited. For another, the airdrop market is ripe with scams you need to learn to identify and avoid. The consequences of negligence can be severe.

Last year, scammers got away with $8 million in Bitcoin and Ether after targeting Uniswap users with a fake airdrop. The swindlers promised a giveaway of 400 Uniswap tokens, an equivalent of around $2000 at that time. Traders who took the bait connected their wallets to a bogus website. As a result, two of them sustained huge losses of an equivalent of, respectively, $6.5 million and $1.7 million. So, it's worth being extra careful when you're offered stuff for free in the crypto world.

Most frequently, an airdrop exploit is a phishing scheme based on obtaining a seed phrase from an unsuspecting victim. It may start with a user finding new tokens in their wallet. The godsend prompts them to exchange "vague" assets for "real money," for example, denominated in Bitcoin, on their platform of choice. A swap doesn't go through, though, so the user heads to the block explorer for details. There, they see a message redirecting them to a third-party website to claim the tokens. Once they're there, the user is encouraged to provide their secret recovery seed phrase. If they do it – you can guess what happens next.

Then, there's a subtler way of sneaking money out of your crypto wallet by means of a fake airdrop. It's called a token approval scam, and it's enabled by the ERC/EIP20 standard interface for the token smart contract. Token approval is permission for a dapp, such as a crypto wallet, to access and transfer a given type of asset from your wallet. Such prompts often pop up in dapps if you're a regular user of decentralized exchanges (DEXs). Here's an example of a token approval prompt provided by the MetaMask website.

Token approval screen
Source: MetaMask.io

In the token approval scam, a user is prompted to confirm the transaction, not realizing that they're giving the page permission to transfer out their tokens rather than transfer them in. Even seed-phrase-conscious users may fall for this scheme if they believe that keeping the magic word sequence private is enough for security. If you're curious about technical details, check out this insightful article on Medium.com.

Remember that web3 space evolves at lightning speed, and so do scam techniques. Here's another inventive way of tricking users out of their assets by means of an airdrop scheme.

Airdrop scams: how to avoid them? 10 best practices

If you want to try luck in the airdrop business, you should do your research and be aware of the risks. A rule of thumb says that if a token appears as a website address, it's most likely a scam. You should also take to heart the advice below. Protecting your seed phrase at any time is crypto knowledge 101.

Here are some additional tips to help you avoid getting ripped off when indulging in airdrop gifts.

1. Check twice (or more) if the airdrop provider is a well-established brand. Google the name, go to social media, read opinions, make sure whether the coin/token is listed on CoinMarketCap.com. If the information is sparse, it's a clue the project may be dodgy, and you should keep away from it.

2. Check if the airdrop is backed by the provider's official channels, like a website or Twitter account. There have been many attempts to trick users into fake airdrops by promoting giveaways from illegit accounts, posing as reliable third-party sources, or impersonating crypto companies.

3. Check if the source, such as a social media account, has a history. If it does, make sure the history is credible by looking at the account's activity.

4. Check the language. Flawed English with glaring grammar and/or spelling errors is a convincing indication that the airdrop may be the work of small-time crooks from somewhere overseas. Both legitimate companies and big-time crooks use proper English for effective marketing.

5. Don't check further if the airdrop promoter asks for a donation before it compensates you with more coins. Just leave.

6. Be extra cautious if the airdrop provider promises extra profits. The approach is as old as con schemes. If the bait is tempting enough, there will always be someone who'll take it. Don't be that person.

7. Your public wallet address is public, but don't provide it to anyone you don't trust. There are ways to exploit this asset.

8. If possible (and usually it is), use an empty wallet for accepting tokens, so there's nothing to steal from if an airdrop campaign turns out to be a scam.

9. If it's not you who found the airdrop, but it's the airdrop provider who "found" you by sending you a direct message, it's quite likely to be a scam or rubbish.

10. Anything out of the ordinary, with particular regard to suspicious requirements, is a sign to get suspicious: double-check the project or drop it.

Hey, don't get freaked out.

Airdrops are a nice way to earn extra cash and get familiar with thrilling crypto projects. You just need to be alert to risk factors. But that's just a basic requirement of surviving anyway.