By CNBCTV18.com Sep 16, 2022, 10:16 PM IST (Published)
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Let’s learn more about ICOs and airdrops and how they differ from one another.
The crypto industry is expanding at a dizzying rate. Sometimes, it seems like there is a new crypto project launched every day. However, one thing that all projects, new and old, have in common is the need to raise funds and build awareness.
This is where initial coin offerings (ICOs) and airdrops come into the picture. While both these activities are helpful for a project in several ways, they are very different concepts. Let’s learn more about ICOs and airdrops and how they differ from one another.
What is an Airdrop
An airdrop is an event wherein a new or existing crypto project distributes its tokens to candidates who meet some pre-decided requirements. It is a marketing strategy in which small amounts of cryptocurrency are sent to a wallet address for free or in exchange for doing particular tasks.
What is an ICO
An Initial Coin Offering (ICO) is similar to an Initial Public Offering of stocks. Companies use ICOs to raise funds for developing and launching a crypto/web3 project. Investors buy the project tokens at lower rates, hoping they will appreciate over time.
Differences between Airdrop and ICO
Motive:
Airdrops are primarily a marketing strategy used by startups and new crypto projects. The main motive of airdrops is to raise awareness and promote a cryptocurrency project. Airdrops encourage people and investors to engage with the project and its social media channels. It can also be deployed to reward existing investors and token holders.
On the other hand, ICOs raise funds to support the development and launch of cryptocurrency projects. The main motive of an ICO is to invite investors and raise funds for the cryptocurrency project that will be launched. Since not all startups and projects have enough wealth at inception, ICOs are a helpful way to get things off the ground.
Method:
The process of an airdrop begins by deciding the goals and objectives that need to be achieved. Once the objective is decided, the developers need to raise awareness about the airdrop. This usually means telling people what they need to do to become eligible for the airdrop and what they stand to receive in return.
After this, developers need to collect information about the eligible users. This entails the collection of wallet addresses, email ids, or a snapshot of the user’s wallet balance. Once the required data is collected, the tokens are distributed from a treasury wallet.
When an ICO is conducted, the company must first decide the coin’s structure, as this determines the price and supply of the token. Along with the coin’s structure, the company must release the project’s ‘whitepaper’.
This document outlines the project’s aim, what the token will be used for and what it will achieve. It also discloses the number of tokens distributed to the public and the amount remaining with the founders. These details help investors ascertain the project’s scope and whether or not they should invest in the ICO.
Eligibility:
For a user to be eligible for an airdrop, there are specific criteria that the company can decide upon. Tokens can be airdropped to users who have taken part in a certain activity, like retweeting or posting something on Instagram.
This is a great way for the company to promote the project and create a buzz on social media. At times, only the investors that already hold a certain number of tokens are eligible for the airdrop. The company can also randomly select users through a raffle system.
The good thing about an ICO is that there is no entry barrier. An investor can participate in the ICO as long as they have the necessary funds. ICOs aren’t as popular now because investors have been subject to many scams. Therefore, researching the ICO, the company, and the people behind it is crucial before investing your money.
Conclusion
ICOs and Airdrops are both helpful in their own ways, and developers can use them to support the project at different stages of the token’s lifecycle. Airdrops and ICOs can also be a good way for investors to make returns. However, since ICOs involve putting your money on the line, a deep dive into the legitimacy and scope of the project is a must.
