5 Benefits of Free Tokens – Ultimate Guide
Sep 2, 2019
Learn What Are Airdrops? 5 Benefits of Free Tokens – Ultimate Guide
What Are Airdrops? The Ultimate Guide to Airdrops (Free Tokens) guide
Reading Time: 14 mins
Cryptocurrency airdrops are basically free coins that are dropped directly into your wallet. It is literally free money handed over to you!
While that does sound pretty fantastical, there is an actual method behind this madness. Airdrops are calculated marketing maneuvers which actually saves companies a lot of money in the long run.
In this guide, we are going to look into what Airdrops are and how they help companies with their marketing and distribution strategies.
What does “Airdrop” mean?
In its literal definition and historical use, an airdrop is a tactic by which crates of food and essential supplies are dropped via airplane to people in need. So, when you see old war footages of soldiers dropping crates of food/supplies etc., that is basically an airdrop.
Image Credit: Millitary.com
In the context of cryptocurrencies, however, this takes a whole new meaning.
If you are involved in the crypto space, then you must have come across this term before. The purpose of this article is to clear up all the confusion that you may have surrounding this term. Also, hopefully, you will learn how to carefully dissect airdrops to make yourself a pretty nifty profit from them!
Airdrops are basically a process by which a company distributes its tokens to the wallets of certain users, completely free of charge. So, the most obvious question that you are thinking about right now is, why will companies simply give their tokens away?
What Are Airdrops? And Why Companies Do It
There are actually several reasons why companies may want to conduct airdrops:
- Generating Awareness
- Understanding the users
- Raising Funds
- Rewarding or Inspiring Loyalty
- Wider Distribution of Tokens
- Hard Forks
#1 Generating Awareness
One of the most important roles of airdrops is to create awareness. While ICOs have raised more than $7 billion in 2018, the fact remains that a major chunk of those funds was raised by a handful of projects. Because of the sheer number of projects out there, most of the promising ICOs don’t even get the attention they deserve.
So, instead of potential users painfully going through ICOs, hunting down good projects and investing in them, what if these projects gave you a few of their tokens? Well, you will automatically get a stake in that system right? The moment you do that, if you are an experienced investor, you will want to learn more about the project.
That in itself is creating a lot of awareness in the project.
Plus, when you search for Airdrops on Twitter, you are invariably going to come across more projects, like this:
#2 Understanding the Users
In order to take part in certain airdrops, you will have to fill up a form like this:
So, what is the purpose of filling a form like this?
By filling them up, the company will gain more information about you, a potential user which will help them make more focused marketing solutions towards their ideal audience.
#3 Raising Funds
EOS airdrops have actually turned out to be a great fundraising method. So, how will that work? Let’s check it out.
Suppose we are creating a on the EOS blockchain and this DApp uses ASD tokens. We have issued 100 million ASD tokens and after the launch of the project, each ASD token is going to be valued at $0.10.
So, the total market cap of your tokens is 100 million * 0.10 = $10 million.
As soon as you launch, you decide to allocate 20 million of these tokens for EOS drops. If you do the math, then that’s 20 million * 0.1 = $2 million that you are allocating just for free giveaways. So, your overall capital goes down from $10 million to (10-2) $8 million.
But, as your airdrop campaign continues, and social media gets flooded with news about your token and you get more eyes on your project. Provided you have a good model, you will have more people posting about you and studying up on what you have to offer. This will increase the perceived value of your tokens.
Even if the value of each ASD token rises by $0.04, the overall value of your tokens will go up to (0.04 * 80) = $11.2 million.
So, by giving away 20% of your tokens, you have raised (11.2 -10) = $1.2 million without even selling a single token! That’s how fundraising in airdrops works.
#4 Rewarding or Inspiring Loyalty
Loyalty among crypto users is a very rare thing. The average user wants to make as much money as possible and the way they do that is by constantly running behind the “next big token” leaving the newcomers behind. Some AirDrops are constructed in such a way that the more tokens you hold, the more you receive in subsequent AirDrops. So, if a user is actually loyal to a token and keeps a substantial amount of it in their wallet, they can be rewarded with more tokens by the company.
At the same time, AirDrops can inspire loyalty among users too since they are now actually incentivized to buy and keep tokens.
#5 Wider Distribution of Tokens
One of the worst things that can happen to an ICO is a hostile takeover by whales. So, what exactly are whales? A whale is a really rich investor who buys a lot of tokens in an ICO and doesn’t let anyone else get their slice of pie.
Let’s work through an infamous example.
Turns out that 5 accounts own more than 50% of the BAT tokens in existence! Now, can you guess why this is a problem?
The idea of cryptocurrencies is that they are supposed to bedecentralized. But what happens if a majority of the tokens are taken over by a few people? It won’t really be decentralized now, will it?
So, can the issuing company do anything to make sure that their tokens are evenly distributed and truly decentralized? Well, yeah AirDrops can help where users are dropped tokens proportionate to their existing holdings.
Airdrops are a pretty effective method of achieving wide and even distribution. All these companies and Dapps are built upon a parent blockchain, like EOS, Ethereum etc. These blockchains are relatively well distributed. Companies can take advantage of that distribution by airdropping their tokens to the holders of the parent blockchain token.
Why is this method so effective?
Well, let’s take an example. Do you remember all those stuff that you used to get free with your cup noodles?
There was a reason behind that.
Cup noodles are a pretty in-demand product and are pretty well-distributed. This is why, when someone comes up with brand new chocolate or biscuit, they strike up a deal with the noodle company to give their product away for free (or it could be a new product that the company behind the noodles is making).
By doing this, they are making sure that a pretty well-distributed and diversified group of people are testing out their products. They saved up a whole lot of cash that they would have needed to use in their marketing by taking advantage of the distribution system and credibility of an already well-established product.
#6 Hard Forks
So, what are hard forks?
A fork is a condition whereby the state of the blockchain diverges into chains where a part of the network has a different perspective on the history of transactions than a different part of the network. That is basically what a fork is, it is a divergence in the perspective of the state of the blockchain.
Now, there are two kinds of forks:
- Soft Fork
- Hard Fork
Whenever a chain needs to be updated there are two ways of doing that: a soft fork or a hard fork. Think of soft fork as an update in the software which is backward compatible. What does that mean? Suppose you are running MS Excel 2005 in your laptop and you want to open a spreadsheet built in MS Excel 2015, you can still open it because MS Excel 2015 is backwards compatible.
BUT, having said that there is a difference. All the updates that you can enjoy in the newer version won’t be visible to you in the older version. Going back to our MS excel analogy again, suppose there is a feature which allows to put in GIFs in the spreadsheet in the 2015 version, you won’t see those GIFs in the 2005 version. So basically, you will see all text but won’t see the GIF.
The primary difference between a soft fork and hard fork is that it is not backwards compatible. Once it is utilized there is absolutely no going back whatsoever. If you do not join the upgraded version of theblockchain then you do not get access to any of the new updates or interact with users of the new system whatsoever. Think PlayStation 3 and PlayStation 4. You can’t play PS3 games in PS4 and you can’t play PS4 games on PS3.
Andreas Antonopoulos describes the difference between hard and soft fork like this: If a vegetarian restaurant would choose to add pork to their menu it would be considered to be a hard fork. if they would decide to add vegan dishes, everyone who is vegetarian could still eat vegan, you don’t have to be vegan to eat there, you could still be vegetarian to eat there and meat eaters could eat there too so that’s a soft fork.
So, on the occasion of a hard fork, users of the original coin can get the new coins as a result of an airdrop.
This is what happened with Bitcoin Cash (BCH). After the fork, all BTCholders got BCH in a 1:1 proportion. Since the BTC token is so well distributed, BCH got to share the distribution as well.
How to Take Part in Airdrops
Well, you can get involved any time you want to. There are just three things that you will need to get started:
- Cryptocurrency Wallet
- The Base Tokens
- Access to Information
#1 Cryptocurrency Wallet
A cryptocurrency wallet is a digital wallet that you can use to store, send and receive various cryptocurrencies.
The wallet isn’t exactly a wallet in a classical sense. You don’t exactly “store” your money as a real-world wallet does. Instead, it saves your public and private keys which in turn helps you send and receive money.
This is the first thing that you need to do because you will need a place to keep all your tokens.
You can look into the following wallets to help store your crypto:
- Ledger Nano S
#2 Base Tokens
EOS, Ethereum, and Bitcoin are all examples of base tokens.
The reason why we call them base tokens is because a majority of the projects built in the cryptospace are either created on top of or are forked off from those three.
So, if you want to take part in airdrops, then you need to have these tokens.
You can go to any exchange right now and trade for those three. They are pretty much available everywhere. Coinbase is a good place to start.
Keep in mind that you will get your airdrop tokens