Estimated reading time: 2 minutes, 50 seconds
Is it raining cryptocurrency from the sky?
Today we are explaining the question: “what is an airdrop?” — when it comes to cryptocurrency. What’s the first thing that comes to your mind when you hear the word “Airdrop”? I see images of the sky filled with parachutes floating supplies down from passing planes to people in need.
Unfortunately a bag of crypto isn’t going to drop from the sky anytime soon, but some may drop into one of your blockchain addresses.
What is an airdrop?
Simply put an airdrop is a just a method of token distribution. Think of it like receiving a gift card from a new restaurant or store in the mail. These tokens represent rights to use the service or software, and are randomly handed out by developers to promote their projects.
Once the token shows up in your address you can use it, sell it, or hold it. It’s up to you.
I know what your thinking… This sounds too good to be true. Surely there must be some catch or cost.
But for the most part there is none. You may have to sign up or make some social media posts to take part in some airdrops, others just require you to have a certain amount of tokens in an address you already control.
While for the most part the is no catch, the laws on how airdrops should be taxed are still unclear.
Why would companies airdrop their tokens?
Like mentioned earlier airdrops are a method of token distribution. Decentralization is a core principle of blockchain, and it wouldn’t be healthy for a company to hoard all its own tokens. So the question is how to distribute them.
One extremely popular way throughout 2017 was with ICOs. An ICO or initial coin offering distributes tokens by selling them for ether or bitcoin. Not only does this distribute the tokens, but it also raises funds for the developers.
Since then the SEC has put more scrutiny on companies using the ICO method then airdrops, making them a more attractive alternative. It’s a good way to put tokens in the hands of users without running into issues with regulation. Some have argued that ICOs aren’t really a fair way to distribute tokens, and airdrops are a lot more egalitarian way of distributing tokens.
How can I find airdropped tokens?
If you hold ether it may be worth it for you to to check your address on Etherscan.io. It can show you if there is anything other than ether hanging out on your address. (If you’d like to know how to do this, our tutorial may be helpful!)
MyCrypto also has the tools to check for airdropped tokens. It can show any tokens that have a non-zero balance on your address.
For other blockchains make sure you check their respective block explorer.
WTF IS is our series where we explore some of the most frequently asked questions about blockchains, cryptocurrencies, and the technology surrounding these fields. Looking to get acquainted with blockchain? Then WTF IS is the perfect series for you!
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