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What Is an Airdrop?

An airdrop of cryptocurrency is an initiative taken by a crypto-related project using an indigenous coin or token that distributes its cryptocurrency to its current or potential users usually for free -- in a digital asset giveaway. Airdrops are used for a variety of reasons: marketing, generating liquidity, and aiding in the creation of equitable governance by decentralizing digital assets of a platform. Airdrop recipients for crypto are typically identified based on previous or current participation in another existing network like Bitcoin or Ethereum, or through a crypto exchange or wallet.

Receiving coins or tokens via airdrops is a simple procedure. Most of the time, you must provide an address for receiving the tokens to the project which distributes the tokens. Certain projects require that you be in contact with the organization that is who is distributing the airdrop by sharing a promotional social media post, completing an online survey, or signing up to a mailing list. You can also receive an airdrop simply by being a participant on an exchange participating in an airdrop for crypto. Why Do Crypto Airdrops Happen?

crypto airdrops External link mark distribute free cryptocurrency or tokens with minimal effort on the part of the receivers- so what's the catch? Why would a blockchain network that is just beginning to develop cryptocurrency or token offer portions of its native resources for free? To understand the value proposition for airdrop receivers and distributors alike, it's important to comprehend the fundamental structure of a blockchain system.

A blockchain platform is a distributed global infrastructure composed of decentralized nodes that share the responsibility of maintaining the network, verifying the authenticity of transactions and maintaining records of the entire blockchain. A blockchain increases its security each time a new node is added because it's a separate entity that is responsible for keeping records of the blockchain, which gives the blockchain another layer of redundancy and increases overall network participation with respect to consensus and governance. Network participation is generally an indicator of the level of security a network has. The more nodes in an uncentralized network more difficult the network is to hack or compromise.

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Airdrops typically aim to aid a brand new crypto project kickstart the process of gaining both visibility and network participation. Through the widespread distribution of tokens or coins at no cost to potential recipients, a network can grow incredibly fast. When a widespread cryptocurrency airdrop happens, a lot of people will own the new currency, thereby increasing the perception of a specific project, boosting its popularity and making it more accessible to own.

From the perspective of the person receiving the gift the new user, a lot of them will likely be motivated by the financial reward- earning free crypto for getting very little -- and could attempt to dispose of airdropped assets as quickly as possible. There is a possibility that a prospective user may learn about the program and decide to keep newly accrued assets and even be a member of the airdropping platform. Some cryptocurrency airdrop programs have had more success than others, but their success is usually more indicative of the worth of the project that is behind it than the airdrop itself. A Brief History of Crypto Airdrops

The first airdrop of cryptocurrency in history took place in 2014. The project, Auroracoin was created to be a national cryptocurrency accessible to all citizens of Iceland. Leveraging Iceland's meticulous national records, Auroracoin distributed its native cryptocurrency, AUR, to the entire population of Iceland -- dedicating 50% of its coin supply for Icelandic citizens. Residents needed only to register to get 31.8 AUR. While Auroracoin pioneered the first cryptocurrency airdrop, it ultimately fell short of achieving its lofty objective of becoming the first official national cryptocurrency.

As you might expect, giving away such huge amounts of money for free has garnered the attention of the media, including from major news sources outside the cryptosphere. A number of news media outlets highlighted the airdrops as some of the largest consumer giveaways ever to take place. Governance Token Airdrops

More recently, crypto airdrops have taken place as governance token distribution mechanisms which means that users of certain platforms are retroactively rewarded with governance tokens for early network participation. Governance tokens are distinctive for their votes in the decision-making process of a decentralized platform. Governance token airdrops have become a common trend in the DeFi ecosystem and have participation from popular platforms like Uniswap, Curve, and 1inch.

The concept of the governance token airdrop was widely used by the decentralized exchange (DEX) protocol Uniswap created its own governance token UNI in 2020. Then, it airdropped 400 UNI tokens to anyone who had utilized the exchange. In total 400 UNI (worth about $1,400 at the time) were distributed to more than 250,000 accounts -- airdropping a grand total of over $350 million. The Uniswap airdrop was notable due to its retroactive distribution structure. The airdrop also established blockchain airdrops as an effective method for platforms to distribute tokens to their community to reward users for their participation. Although most airdrops gave a few free coins or tokens of a small amount however, the UNI airdrop substantially compensated users.

Nowadays, a lot of people utilize social media and various websites to keep tabs on new airdrops -- of which the number has been a lot -or in the hope of finding the next great cryptocurrency project, or to get free assets. Closing Discussions

Even if an airdropped cryptocurrency isn't as effective as its distributors and recipients hope and it is unable to retain its worth, it's free, right? There are a few considerations to keep in mind when it comes to airdrop programs. First, income received through airdrops is still subject to taxation, although the exact specifics of taxation vary by jurisdiction. The amount that is received from an airdrop is usually modest, however, as time passes, it could increase as a network grows and, consequently, carries a greater tax liability.

-- Aalilyanna Trump - 2022-08-09

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Revision: r1 - 2022-08-09 - 13:01:43 - AalilyannaTrump

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