An airdrop is a distribution of a cryptocurrency token or coin, usually for free, to numerous wallet addresses. Airdrops are primarily implemented as a way of gaining attention and new followers, resulting in a larger user-base and a wider disbursement of coins.
Airdrops aim to take advantage of network effect by engaging existing holders of a particular blockchain-based currency, such as Bitcoin or Ethereum in their currency or project.
There are two ways creators distribute their tokens: by selecting recipients at random, or by publishing the event in airdrop-related bulletin boards or newsletters. Often, random Ethereum accounts with a value above a certain threshold will receive various unsolicited airdropped tokens. Many websites now exist which promote cryptocurrency Airdrops, and social media is a great place to read about upcoming Airdrops.
Cryptocurrency enthusiasts can gain free cryptocurrency by supporting projects who release coins through an Airdrop. Often, Airdrops will have requirements such as joining a Telegram channel, retweeting a tweet, or inviting new users to the project. Should the participant have to contribute capital towards the project, then this is not considered an airdrop, but an ICO.
Airdrops can be considered[by whom?] a very effective and common marketing strategy among new cryptocurrency projects. Its goal is usually to spread the word about a certain product, coin, or exchange in the world of cryptocurrencies. Additionally, the new token-holders are incentivized towards the success of the project due to owning a certain number of coins themselves.
Lately[when?] this strategy has become increasingly important to the larger cryptocurrency community due to the effectiveness of the strategy, as well as unwanted/spammy[clarification needed] advertising practices. Because of this unsavory reputation, many social networks, most notably Facebook, are now refusing to allow ads promoting various virtual coins.
In the United States, the practice has raised questions about tax liabilities and whether they amount to income or capital gains.
- ^Bogart, Spencer (2017-10-08). “The Trend That Is Increasing The Urgency Of Owning Bitcoin And Ethereum”. Forbes.com.
- ^BJORØY, Trond Vidar (2017-09-06). “The latest crypto PR craze: ‘Airdropping’ free coins into your wallet”. venturebeat.com.
- ^“Facebook is banning all ads promoting cryptocurrencies — including bitcoin and ICOs”. Recode. Retrieved 2018-05-03.
- ^Recently, Facebook decided to lift its ban on some cryptocurrency ads and allow them through vetted advertisers. “Facebook lifts its ban on some cryptocurrency ads”. Engadget. Retrieved 2018-08-29.
- ^“Bitcoin Is on a Collision Course With the IRS”. Fortune. Retrieved 2018-01-17.
- ^“Bitcoin Tax Laws Are A Nightmare So People Ignore Them”. International Business Times. 2017-11-16. Retrieved 2018-01-17.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.