Coins and Tokens 5 min, 6 sec READ

by Mike Dalton

Cryptocurrency airdrops are a new way for users to acquire new coins and tokens. But are they worth your time and effort?

New altcoins and tokens are increasingly difficult for the typical user to acquire. Mining is no longer a viable way to acquire cryptocurrency, as hardware costs can easily outweigh one's earnings -- mining is most profitable in large-scale data centers. Stricter ICO regulations also make it more difficult for anyone but accredited investors to purchase tokens early in a cryptocurrency's life cycle.

For these reasons, altcoin teams have turned to airdrops as a way to get coins into the wallets of users. An Airdrop is when an ICO or altcoin project distributes free tokens.  Usually, this is done to increase the project's user base and create hype. 

While both airdrop and initial coin offerings (ICOs) are used to create buzz around new cryptocurrencies, they are somewhat different. Typically requiring participants to make an initial investment, ICOs involve selling tokens to investors to raise money for project development. By distributing tokens for free, airdrops encourage users to participate without any financial investment. This makes airdrops more accessible to a wider audience.

From a user's perspective, it's important to consider whether airdrops are really worthwhile, safe, and -- above all -- free.

No Such Thing As A Free Lunch?

Airdrops do not cost money. They are designed to allow potential coin and token holders to circumvent financial obstacles, such as the cost of mining hardware and the price of investing.

But there is no such thing as a free lunch, an airdropped token platform will likely collect your personal information and will almost certainly cost you some privacy. Even legitimate airdrops, such as the one during the MoneroV hard fork, have been condemned for poor privacy practices. Customers should be wary of airdrops which require extensive identifying information. There is considerable risk that the airdrop platform will misuse your information, sell it, or leave it insecure.  Furthermore, a significant number of airdrop platforms are complete scams.  Their objective is to collect banking information from unsuspecting users.  Generally, if an airdrop platform asks for your financial information or private wallet keys, you should consider it a scam. 

On the other hand, you cannot participate in an airdrop without providing at least some identifying information.  You will normally need to verify your email or mobile phone number with the airdrop platform. This helps the developers to comply with anti-money laundering (AML) regulations and ensures that people are not taking advantage of the airdrop more than once. Of course, your contact information also allows them to continue promoting the project to you.

In most cases, a legitimate airdrop project will require you to spend time and effort. For example,  they will pay you a few tokens if you promote their token on social media. Sometimes, they will offer a larger number of tokens if you review the project on a private site. This may in some cases, be in combination with a referral system, in which you receive more tokens the more friends you convince to sign up.  Users should be wary of an airdrop that depends solely on referrals.  This could be a sign of a pyramid scheme. 

Ethereum and ERC-20 Tokens -- A Truly Free Airdrop?

Some airdrops really are free. Free tokens are usually associated with existing cryptocurrencies. For example, if you are already holding Ethereum, you may not even realize that you are receiving airdropped tokens. Various ERC-20 tokens are built on the Ethereum platform, and token creators may choose a select number of Ethereum wallets to distribute a small number of coins to. This is done in the hope that it will generate word-of-mouth popularity.

These airdrops do not require your personal information or your time. However, you must be actively using your Ethereum wallet to claim your tokens.

Hard Forks -- Another Free Airdrop

Airdrops are often the result of hard forks. A Hard fork is when a coin community disagrees with the direction that a cryptocurrency has taken and split to create 2 independent blockchains. Normally the community leaders behind the fork are interested in attracting as much of the existing userbase to the newly forked cryptocurrency, and so they will airdrop new coins to users who hold the original coin.

Some cryptocurrencies, especially Bitcoin, are frequently hard-forked. These forks rarely approach the value of the original, although some, such as BitcoinCash, have become successful.

Staying Safe and Complying With Regulations

Even though airdrops don't cost money, they do require you to give up your time and private information. Not all are worth your attention and some are outright scams. It is possible your personal information will be misused or sold and as with any phishing scam, you should never provide personal banking information or cryptocurrency wallet keys in exchange for free stuff.  

If you are interested in profiting from this phenomenon look for sites that aggregate and rate airdrops. When choosing an airdrop, verify that the people behind it really exist. Review social media profiles for accuracy and history.    Many airdrops appear out of nowhere, just as ICOs do and this is likely an indication of a scam.

Remember that just because you aren't spending money, doesn't mean that financial regulations do not apply. CoinList is an ICO facilitator working to ensure that airdrops comply with securities regulations and KYC/AML regulations. Most importantly, if your tokens gain value it is your responsibility to investigate what tax rules apply.

Conclusion

On the whole, airdrops are not profitable in isolation, but in conjunction with other cryptocurrency investments, they may add up to something worthwhile. In addition to the small potential financial gains that an airdrop offers, you may also gain early access to new platforms that use the token.

It's impossible to predict the future value of any new coin or token, and most will be worth little or nothing. Airdrops are most worthwhile if you already have a web presence and are already spending your time investigating new altcoins.