The Pros And Cons Of Cryptocurrency Airdrops

There are many ways to get crypto; you can buy it, mint it, stake it, and earn it for completing work. But perhaps the most fun way to get your hands on some tokens is via airdrops. Anyone who’s been in the crypto sector long enough has participated in one airdrop or the other.

Airdrops serve multiple functions in the crypto sector, as they are used by various projects to reward users, promote themselves, and even manage their token supply. As Daniele Savietto writes, many top projects across the world, including the UK, US, and Brazil, airdrop crypto at different times, usually to a lot of fanfare. But what are airdrops and what are their pros and cons?

What is a Crypto Airdrop

The simplest way to explain a crypto airdrop is that it is cryptos being given away for free. Airdrops are most commonly done by crypto projects or individuals looking to give back to a community. In that case, interested parties sign up with their crypto wallets and if they are selected, they are given a certain number of tokens for free. 

The idea behind giving away tokens via airdrops is purely for sentimental reasons. For example, popular memecoin BONK was airdropped to Solana developers in late 2022 after they had faced several setbacks in the months prior. Other examples include crypto projects airdropping tokens at launch or as a reward to early investors. Airdrops can also be part of competitions or as an incentive to drive engagement within an ecosystem. Sometimes, airdrops don’t have a reason; someone with a lot of crypto decides to give them away just because. Needless to say, airdrops have become very sought after by crypto users. 

Pros of Airdrops

Airdrops remain a popular method of token acquisition for the following reasons:

Free Tokens 

Let’s face it; humans love free stuff and cryptos are certainly part of this. Crypto investors know all too well the hassle of mining or staking tokens looking to make some money. The idea of someone giving you cryptocurrency for free, no matter the amount, is very appealing. This is especially true if the airdrop is organized by a crypto project they have engaged with for a while as this can deepen their connection to it. 

Increased Profit/Utility

While free cryptos are obviously nice, they are not necessarily wanted just for their sake. If the token in question is a commercial crypto, there is the option to resell it at a later date and make a profit. Think of how Solana developers got free BONK back in 2022. The tokens are now worth much more today, and anyone who held on to those airdrop tokens could get thousands of dollars for them today. Then there is the utility; some airdropped tokens serve specific functions in different ecosystems, such as unlocking rewards, being used within games, and so on. Getting these tokens, especially for free, means that players can have a more robust experience and this is always a plus. 

Project Discovery

Many crypto users go online looking for airdrops and the free tokens they promise. But in the process, many of them find new projects to genuinely engage with. A consumer might take part in an airdrop to win a gaming project’s token and then find out that they actually like the token. This, in turn, means that upcoming crypto projects can find an audience and survive in the market. This is why many projects, both big and small, opt to use airdrops as part of their marketing campaigns and why many consumers enthusiastically participate in them. 

Token Distribution/Management

On the projects’ end, airdrops can be a way to manage their token supply. When a new project launches and wants to push its assets into the market, it may opt to give them away for free. After all, the tokens distributed count as circulating supply and this helps their numbers. Plus, as we’ve said, most airdrop collectors go on to use the tokens, whether by selling them or using them within the ecosystem. Projects looking to boost their numbers benefit a lot from airdrops, which is why they continue to organize them.

Cons of Airdrops

While airdrops come with all of these benefits, there are also a few cons to be aware of.

Scams

Crypto users are eager to participate in airdrops and scammers have caught on to this. In fact, one of the most common ways to rob crypto users is through fake airdrops. In this case, the scammers promote a fake airdrop and tell the public to sign up via certain links. These links, once clicked, give the scammers access to users’ wallets and rather than get new tokens, their existing crypto is stolen. Even when the airdrop isn’t a scam, there is a level of risk attached to constantly signing up for airdrops and leaving your crypto wallet details in multiple spaces online. While getting free tokens is great, it can expose you to scammers so you’ll have to practice crypto wallet safety. 

Shitcoins 

While it is exciting to get free crypto, not every token that is given away via airdrops is a great asset. In fact, it is very possible to get shitcoins dropped into your crypto wallet, and this doesn’t benefit you in the least. As we’ve said, lots of crypto projects use airdrops to generate some buzz but even then, there is the chance that it will fail and the tokens will be worthless. On top of this, there are actually people who create and giveaway shitcoins for no reason. When this happens, the investors who spend time and energy to get airdropped tokens essentially waste their efforts. 

Tax Implication 

Crypto tax laws are being enforced more strictly these days and getting airdropped tokens can mean having more taxes to pay. This depends on where you live, of course, but cryptos given out for free can also be subject to tax if they are disposed of i.e. sold. And if the airdropped tokens end up not being worth a lot of money, the recipient risks spending more time and money filing for their crypto-related taxes than what they gained. 

Conclusion

Airdrops are an amazing way for crypto lovers to get their hands on new tokens for free, and crypto projects to connect with their users (and even find new ones), and seem to be a net positive. However, while airdrops remain popular thanks to these benefits, some caution is still advised. Scammers sometimes use airdrops as a way to defraud their victims and getting free tokens doesn’t mean there will be any benefit to them. Finally, crypto tokens, even if they are free, come with some tax obligations.