Q: I’m pretty new to investing in cryptocurrencies, so there’s a lot I still don’t understand. What exactly is an airdrop?
A: An airdrop is when a blockchain or crypto project gives people free cryptocurrency. For investors, this is a great deal. You get free coins. And if the coins go up in value, you’ve risked no money for potentially substantial returns.
For crypto and blockchain projects, airdrops are a way to market their new product and build liquidity. Look at it this way: There are hundreds, if not thousands, of new blockchain projects currently under development. And every single one of them is competing for attention.
There are lots of ways to get attention. Blogs, Twitter, Facebook, YouTube, press releases and earned media (TV appearances and interviews with the press) all come to mind. But almost nothing is as effective as airdrops.
Why? Because when you give away coins, people have a vested interest in the success of the project or product. They might use it themselves. They might spread the word and get friends, family and colleagues to use it. Adoption and use create value. The more value a project has, the higher the price of the coin will go. And everyone wants the price of their coins to go up.
Additionally, a lot of crypto and blockchain projects won’t take off unless there are enough people on the network actually using it. Airdrops are a good way to recruit potential users.
That’s why many airdrops require participants to complete some social media tasks in order to receive their free crypto. Airdrops are one of the most important marketing tools a project has. And those projects want to maximize their returns.
In the end, airdrops are great for both investors and businesses. For investors, airdrops are a way to risk nothing but a few minutes on social media for the chance to potentially make thousands of dollars. And for companies, airdrops are a great way to publicize their product and get people to use it.
+ Early Investing Senior Managing Editor Vin Narayanan