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Updated on :  

08 min read.

You may have often seen that when a new store opens or a company comes into being, they tend to give discount coupons via email or when you visit them. This is a good strategy to increase awareness about their existence and build a customer base.

In the crypto world, a similar practice exists. It is called an airdrop. The following sections will give you a clear idea about the airdrop. 

Let’s find out.

What is an airdrop?

An airdrop is a process in which a newly launched crypto project distributes free tokens to the public. You must own a certain number of tokens on a particular blockchain to get one.

The main reason why airdrops exist is that it serves as an effective way to promote a new project. This helps cryptocurrency holders like you diversify their assets, earn an effective dividend (based on previous holdings), spread awareness of the airdropped token and ultimately participate in the activities on that blockchain. 

For the crypto project, it helps them onboard people, to their project and ensures a fair distribution of their tokens from the first day. This marketing strategy became quite popular during the ICO boom of 2017. However, it is still very relevant today as many new crypto projects still use this technique. 

How does a crypto airdrop work?

If you are a crypto holder, you may receive an airdrop after a certain period. You need to have a specific number of tokens in a publicly discoverable wallet at a certain period. This interval is called snapshot time. 

Before an airdrop event, the companies take a snapshot of the account balance of each token holder at a specific point in time. They distribute cryptocurrency to certain token holders for free or in exchange for small services. 

They can take place in the following manners:

  • The company may give free crypto to holders of tokens on a particular blockchain-based on their account balance. A user gets rewards if their holdings meet the company’s requirements. They may also take a snapshot and allow its token holders to claim the airdrop on a later date from the company website via a smart contract. This is known as a Holder airdrop.

For example: 

A company called Gas DAO, which issues GAS tokens on the Ethereum blockchain, once conducted an airdrop. Any user who had paid $1,559 or more on Ethereum as gas fees were eligible for it. More than 57,000 addresses claimed the rewards from Gas DAO’s website. 

  • In the event of a Bounty airdrop, a company may ask token holders to do certain tasks like follow a certain account on social media, share or retweet a post (including a hashtag), create an account and sign up to receive updates or conduct a transaction using a certain crypto platform or wallet. The company rewards the token holders with cryptocurrency upon fulfilling the mentioned criteria. 
  • Only a select group of people get rewards in case of an Exclusive airdrop. It may include individuals who have had a long history of association with a certain project, a dedicated supporter from the creation date, or an active community member. 

For example:

In September 2020, Uniswap airdropped 400 UNI to every user who had interacted with its protocol before a certain date. 

  • At certain times, when many crypto miners adopt a radical set of new rules for the network, the cryptocurrency of that ecosystem undergoes a hard fork. In such situations, a new crypto coin is created, and the holders of the original token receive an equal amount of the new token in their crypto wallets. This is called a Hard Fork airdrop. 

For example:

Bitcoin hard forked in 2017. Bitcoin users who held BTC got an equal amount of Bitcoin Cash (BCH) in their accounts. 

How to become eligible for future airdrops?

Apart from having the requisite number of tokens in your account and waiting for a new blockchain project to launch, there are other methods to get airdrops. You can follow the steps given below to increase your eligibility for getting airdrops:

  1. Be active on cryptocurrency forums and crypto news websites for updates on upcoming airdrops
  2. Become an active user on different blockchains, crypto services, products and platforms
  3. Find dedicated crypto airdrop websites
  4. Check on social media websites for #airdrop posts and keep tabs on what’s happening

Advantages of crypto airdrops

If you are the owner of a company launching a crypto project, conducting an airdrop can be a brilliant idea. It is a brilliant marketing technique that will make your organisation stand out. Furthermore, it will encourage the token recipients to trade your token and thus bring it into circulation. 

The ultimate goal of a cryptocurrency is to be usable in all walks of life. Airdropping new cryptos to eligible users is a very encouraging step. 

Important pointers on airdrops

To get the full benefit of airdrops, there are certain things to keep in mind. They are:

  • Having an exchange address will not make you eligible for getting airdrops. It would help if you had a crypto wallet to receive them. 
  • Sometimes airdrops can be pump-and-dump schemes. Companies use it to inflate the price artificially. This helps them in getting a quick profit. Keep a watch on how the token trades in the market over time. If it trades well and is from an established company, you can be assured that you are not a part of such schemes. 
  • Some companies may ask for a small fee for alleged airdrops. Please stay away from such offers as they are fraudulent. 
  • In India, a flat 30% tax will be levied on the amount or profit earned from the sale or transfer of crypto.
  • After receiving an airdrop, you can trade or sell it based on your investment strategy. 

If you are new to crypto investing, airdrops can be a gateway to exploring and interacting with this new world. However, before you dive in, conduct thorough research from credible resources. Doing a background search on an organisation offering airdrops is always a good idea to keep yourself safe from fraud.