An airdrop is an unsolicited distribution of a

cryptocurrency A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...

token or coin, usually for free, to numerous wallet addresses. Airdrops are often associated with the launch of a new cryptocurrency or a DeFi protocol, primarily as a way of gaining attention and new followers, resulting in a larger user base and a wider disbursement of coins. Airdrops have been a more important part of ICOs since crypto

entrepreneurs Entrepreneurship is the creation or extraction of economic value. With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values th ...

have started doing private sales instead of public offerings to raise initial capital. One example of this is by the company Omise, which gave away five percent of its OmiseGO cryptocurrency to

Ethereum Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether (Abbreviation: ETH; sign: Ξ) is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capita ...

holders in September 2017. Airdrops are also often used by companies, brands and entrepreneurs to reward their current holders, investors and collectors, which may receive tokens, coins or assets for free, based on how much they invested or contributed to a certain project. Airdrops aim to take advantage of the

network effect In economics, a network effect (also called network externality or demand-side economies of scale) is the phenomenon by which the value or utility a user derives from a good or service depends on the number of users of compatible products. Net ...

by engaging existing holders of a particular

blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a ...

-based currency, such as

Bitcoin Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...

in their currency or project. In the United States, the practice has raised policy issues about tax liability and whether they amount to

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. For ...

capital gains Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares ...

. A

dusting attack A dusting attack is an attack on a cryptocurrency wallet that sends tiny amounts of cryptocurrency (known as "dust") to that wallet in order to uncover the identity of the wallet's owner. Information can then be used to obstruct receiving legitim ...

is one important risk of crypto airdrops to take into consideration.

References

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