What’s in that airdrop?

Good morning! Welcome to The Daily Moon. Made plans for New Year’s eve yet? It’s likely to be crowded everywhere, now that revenge travel is in full swing. Our recommendation, stay home, call your friends, watch that Fifa documentary on Netflix. Moving on, today we give you a glimpse into how airdrops work.

Understanding Airdrops

“Airdrops!” “Giveaway” “Avail this drop!”

If you’ve ever been part of Twitter or Telegram or Discord crypto, there’s a good chance you’ve seen this phrase.

Airdrops are like promotions for new blockchain and projects. These projects send tokens to wallets as a way to promote and raise awareness.

A close (but not entirely accurate) analogy is receiving a discount coupon to shop with a newly launched e-commerce website. There are different ways e-commerce platforms do this. Users may receive a discount coupon on their email as part of a mailing list. Another way is to opt-in through the platform’s website to receive a discount code. Some websites will give you a discount if you spend a certain amount to buy their products. This is a loose analogy.

There are a few different kinds of airdrops:

1. Standard Airdrop

This is the simplest kind of airdrop. All you need is a valid crypto wallet address and be a part of the right social media channels. Crypto projects often distribute a certain amount of tokens to wallets but because there is usually a limited number of “free” tokens, you have to show up early.

1. Bounty Airdrop

This is the equivalent of “give us your email and get a 10% instant discount” on e-commerce. You get tokens airdropped into your wallet for completing tasks. The tasks aren’t obstacle courses. But they are valuable for a crypto project.

Some common types of tasks for a bounty airdrop are:

• Sign up for a newsletter.

• Follow social media channels.

• Share, like, or retweet content.

• Be active in a Discord or Telegram group.

There could be a point system attached to these tasks. For example, completing a task earns you 10 points. And the project says you’ll be eligible for an airdrop with 200 points.

1. Holder Airdrop

You become eligible for new, free tokens of a new cryptocurrency if you hold a certain amount of tokens of another cryptocurrency. For example, a new crypto project may say they will airdrop their tokens in your wallet if you have at least 2 ETH already. The drawback: you may not want this new token even if you are eligible.

There are also some other kinds of airdrops such as exclusive and raffle, but these are subsets of the ones we’ve spoken about above. Besides cryptocurrencies, NFT projects also often use airdrops to create a buzz.

Great, so airdrops are the way to crypto riches?

It’s not as straightforward as that. Mainly because airdropped tokens are taxable, depending on which country you’re in. Some examples:

• In the US, crypto airdrops are taxed as income. Whether you want the tokens or not.

• The UK doesn’t tax crypto airdrops if there was no business motive. But a valuation increase invites income tax.

• Australia does not tax an airdropped token, at the time of airdrop, as income.

Most countries, however, apply a capital gains tax if you sell airdropped tokens.

Beware of airdrops scams

Airdrops are free. And scammers know people love freebies. So there will be pump-and-dump kinds of scams and phishing where people may lose a little or upwards of a few million.

The key is to remain safe. Airdrops are a great way for both users and new projects to be out and about in the world.

Here are a few things you can do to avoid getting scammed:

• Do not connect your wallet to an untrustworthy website.

• Airdrops do not ask for capital investment.

• Keep a separate wallet specifically for airdrops.

• Move the tokens to your primary wallet(s) after the airdrop.

If the team behind the airdrop looks legit, you are safe.

FYI: The first ever airdrop was that of AuroraCoin (AUR) on March 25, 2014. AUR was planned to become the cryptocurrency of Iceland. So every citizen or permanent resident who submitted their national ID received 31.8 AUR in their crypto wallet as an airdrop. It didn’t eventually work, but still makes for a cool story.

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