If you’ve been following the crypto news lately, you’ve probably seen a lot of hubbub about “airdrops.”
The term originally coined to describe the method by which crypto holders are delivered new crypto assets after a given blockchain undergoes a hard fork has now become one of the most powerful marketing tools in the alt currency space.
The reason for that transition is that, in July 2017, the US Securities and Exchange Commission (SEC) ruled that ICOs – or Initial Coin Offerings – could no longer operate as such.
That is, all ICOs would from then on be regulated like IPOs.
This additional regulation effectively killed the ICO market, though they do still exist.
For a little background, ICOs are a way for new cryptocurrency platforms to get investment from the public.
This is differentiated from “crowdselling” – the model that has now replaced the ICO – by the application of the so-called “Howey Test.”
Per Escape Artist:
“The Howey test asks whether the purchase of the token represents: 1. the investment of money; 2. with an expectation of profits; 3. arising from a common enterprise; 4. depending solely on the efforts of a promoter or third party. …
[The] sale of a token will be an ICO regulated by the SEC if it entitles the buyer to a portion of profit or revenues, a guaranteed annuity, or has other features that make it appear to be an investment in the business in exchange for an electronic form of stock. …
[If] the token is not tied to profits, and is to be used for services within the business, it will be considered a crowdsale not regulated by the SEC.”
With that out of the way, let’s get back to airdrops.
In layman’s terms (and we’re definitely crypto laymen, all things considered), an airdrop is when crypto is delivered to your wallet automatically as the result of various happenings in the wider crypto market.
But to call these airdrops “free” is misleading, and it muddies the waters significantly.
Airdrops today are most often related to crowdselling compensation, in which case they’re decidedly not free. They may turn out to be very good deals – to be virtually free – but they’re not totally free.
However, not all airdrops are predicated on the ICO/crowdselling model. Some are truly awarded without the recipient making a direct monetary investment.
As stated at the outset, if a given blockchain undergoes a hard fork as the result of a consensus split, a new offshoot chain is created.
Many popular cryptos have their origins in such hard forks.
Bitcoin Cash forked off the Bitcoin blockchain in 2017 (after which Bitcoin SV forked off the Bitcoin Cash blockchain in 2018), while Ethereum Classic forked off the Ethereum blockchain in 2016.
In each case, holders of crypto on the originating chain were delivered an equivalent token amount of the newly created crypto on the diverging chain.
For example, if you had 100 Bitcoin tokens before Bitcoin Cash forked off, you’d be delivered 100 Bitcoin Cash tokens.
This occurs via airdrops.
In such a case, the airdrop is indeed free – provided, of course, that you own some of the originating crypto, which is not free.
But this doesn’t happen all that often, and it can sometimes backfire bigly.
Here’s a case we remember off the cuff:
Years ago, NXT – a then-popular crypto asset – announced the IGNIS hard fork. Whatever NXT you held before the fork, that’s how much IGNIS you’d be given after the fork.
Countless crypto enthusiasts snatched up NXT as a result of the announced IGNIS split, because “free crypto.” The price of NXT went from under six cents per coin to $1.82.
Immediately after the IGNIS fork, the NXT price fell off a cliff and is today trading at $0.012 per coin. Meanwhile, IGNIS is trading at $0.02.
So, if you bought NXT during the hype because you were looking forward to your free IGNIS, you’re now down three cents per combined NXT + IGNIS coin.
In these cases, “free” can plunge you into the red in a hurry.
All the above means to score free crypto aside, there’s one more way we haven’t covered, and that’s the method that’s really taking off lately.
The newest kind of airdrop is a sort of social marketing game.
You download an app or sign up for some free software tool, participate in various tasks, take quizzes, browse news stories, vote on various issues, etc.
You basically become an active member in a crypto community that’s been assembled around a new as-yet-unreleased crypto platform.
Then, when that platform launched, you’re airdropped your “rewards” for participating.
These have whatever value the larger trading market assigns, and everything’s on the up and up.
But again, how free is this stuff?
Well, you’re not making a direct financial investment, so it’s free in that sense.
But you are investing time, research, and – perhaps most importantly – awareness into these projects. You have to be an avid consumer of crypto news to take advantage of these opportunities, and that means there’s a very real investment involved.
We should also point out that – depending on the coin in question – there are other ways to earn free money.
Proof-of-Stake (PoS) cryptos, such as Cardano (ADA) and Solana (SOL), allow for passive income via the delegation of your holdings to stake pools.
Of course, to earn free ADA or free SOL, you actually have to hold and delegate some ADA or SOL.
So no matter how you slice it, free crypto really isn’t.
In the immortal words of Robert A. Heinlein:
Edit: We still think the best and fastest way to score “free” cryptocurrency is to bet sports online and pull out your winnings in one of the crypto assets your site supports in its online betting banking suite.
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