Complete Guide to Cryptocurrency Airdrops: How to Earn and Risks to Watch Out For

The Reality of Airdrops Gaining Attention in the Cryptocurrency Market

Airdrops are rapidly increasing in prominence within the cryptocurrency investment scene. Understanding this mechanism is an essential skill for efficiently growing assets in the crypto market from 2024 to 2025.

Especially with the surge of layer 2 solutions and AI-related projects, token distributions worth billions of dollars are being executed monthly, and airdrops are evolving from mere promotional activities by companies into recognized “investment themes” across the market. This article covers practical knowledge from how airdrops work, to participation precautions, and tax procedures.

What is an Airdrop: Basic Definition and Background

Definition and Operational Forms of Airdrops

An airdrop is an event where project operators distribute cryptocurrencies or NFTs for free to users who meet certain conditions set by the project. While serving as a marketing method to increase market awareness of new projects, it has also come to function as a reward system for existing token holders and as part of long-term loyalty programs.

In addition to traditional “one-time distributions,” recent projects increasingly adopt more complex, long-term participation structures such as point systems and tiered reward schemes.

Reasons Cryptocurrency Projects Conduct Airdrops

The main strategic reasons for projects to utilize airdrops are as follows:

Market Formation and Liquidity Assurance: Newly issued tokens initially have limited holders, making trading difficult. Airdrops help form a broad holder base, enabling a healthy market mechanism.

Building an Initial User Base: An active user community is fundamental for project growth. Acquiring a large number of early holders is a key management strategy.

Revitalizing Blockchain Ecosystems: In certain layer 2 and DeFi protocols, increasing user numbers directly boosts revenue from transaction fees, making airdrops a strategic investment target.

Fair Initial Distribution During Hard Forks: When a currency splits, such as Bitcoin Cash, equitable distribution to original token holders is technically and ethically required.

In 2024, projects like EigenLayer have executed airdrops worth billions of dollars, demonstrating significant influence on the market.

Methods of Participating in Airdrops: Four Main Types and Conditions

Participation conditions and preparations vary depending on the type of airdrop. Understanding each type’s characteristics in advance leads to more efficient participation.

Understanding these formats allows you to select the most suitable opportunities based on your situation.

Benefits of Airdrops: How Investors Can Leverage Them

Risk-Free Asset Acquisition

The biggest appeal of airdrops is obtaining cryptocurrencies without any direct capital investment. This provides an ideal entry point for beginners to learn about the crypto market while experiencing actual asset accumulation.

This system is mutually beneficial: organizers expand their user base and generate fee income, while participants receive free assets and gain market exposure.

Positive Spiral from Holding Tokens

Airdrops conditioned on “holding specific currencies” stimulate demand for purchasing those currencies. As a result, existing holders may see secondary gains through price increases before and after the distribution.

However, rapid selling pressure immediately after the snapshot can cause a price correction, so long-term investment decisions and airdrop participation should be considered separately.

Early Participation in Promising Projects

Participating for free in projects before they gain widespread recognition can lead to substantial returns if successful. Some unknown projects have seen their tokens listed on major exchanges or partnered with companies, causing their value to multiply by dozens or hundreds of times.

Ripple Effect on the Entire Blockchain Market

Widespread distribution of tokens enhances market liquidity, reduces spreads, and minimizes slippage. This lowers transaction costs for all users and improves overall market efficiency.

Major Risks and Countermeasures When Participating in Airdrops

The Reality of Fraud Schemes and Defense Strategies

Fraudulent schemes disguised as airdrops are a significant industry problem. Reports include theft of wallet private keys and passwords, phishing scams, and fund drain via smart contract exploits.

Key safety points:

• Verify information only through official channels
• Never share your wallet’s private key (official distributions do not require this)
• Avoid connecting wallets to suspicious websites
• Use dedicated wallets (e.g., for airdrops)

If asked for your private key, it is definitely a scam. Legitimate protocols only require your wallet address.

Risks of Value Disappearance After Token Receipt

Many distributed tokens are not valued highly on the market and may hold little actual worth. Receiving 1,000 tokens worth 0.01 yen each results in only a few hundred yen total.

If the fees (gas costs, etc.) to participate exceed the value of the distributed tokens, participation becomes economically negative. Conducting a cost-benefit analysis before participating is essential.

Tax Filing Obligations and Financial Burden

In Japan, cryptocurrencies obtained via airdrops are taxed as “miscellaneous income” based on their market value at the time of distribution. Even if free, they are not tax-exempt.

Currently, tax rates can reach up to 55%. However, the Financial Services Agency is considering reforming the tax system to align with the separate declaration system for stocks (around 20%), so future changes are expected.

If annual income from airdrops is 200,000 yen or less, filing is not required. If it exceeds that, filing obligations arise. Using tax calculation tools or consulting a tax professional is recommended when managing multiple exchanges.

Procedures for Converting Unlisted Airdrop Tokens on Domestic Exchanges

Many airdrop tokens are not available on domestic exchanges, requiring conversion via overseas platforms. This entails practical challenges such as:

• Managing multiple exchange accounts
• Delays from international remittances
• Increased complexity in tax calculations during filing

Common Questions and Practical Answers About Airdrop Participation

Can Beginners Participate?

Generally, yes. Especially SNS-linked airdrops are easy to join with simple actions like following or retweeting, making them suitable for crypto newcomers.

However, snapshot-based airdrops require wallet operations and purchasing specific currencies, which demand some technical knowledge. Beginners are advised to start with small amounts and choose reputable projects.

Is Wallet Preparation Necessary?

For snapshot-based airdrops, wallet setup is essential because holdings at the specified time are verified within the wallet. Popular options include hot wallets like MetaMask or hardware wallets like Ledger.

Confirm this requirement before participating.

Criteria for Security and Safety

Features of secure airdrops:

• Clear announcements on official sites
• No requirement to share private keys
• Verifiable project track record

If you feel uncertain, it’s best to refrain from participating.

Practical Strategies for Effective Airdrop Utilization

To profit efficiently from airdrops, a systematic approach is necessary.

Build Information Channels: Use official project websites, trusted blockchain media, community discussions, and social media from industry figures.

Establish Risk Assessment Processes: Always verify official info before participation, check security audit history, and analyze project fundamentals.

Portfolio Diversification: Spread participation across multiple projects to avoid concentration risk.

Maintain Tax Records: Keep detailed logs of distribution dates, amounts, prices, and sale timings to prepare for tax filing.

Summary: The Role of Airdrops in the Cryptocurrency Market

Airdrops have become a cultural staple in the crypto world. When used properly, they can be a valuable method to expand your investment portfolio.

Key Points Summary:

• Airdrops are free distributions of cryptocurrencies or NFTs upon meeting certain conditions
• Multiple formats exist: snapshot-based, SNS-linked, usage-based, etc.
• Benefits include free acquisition, potential price appreciation, and early project participation
• Countermeasures against scams, value loss, and taxation are essential
• Security and thorough information verification are top priorities before participation

While airdrops offer a valuable opportunity to grow your crypto investments, lacking sufficient knowledge and caution can lead to losses or scams. By following the points outlined in this article, you can participate safely and strategically, broadening your options in the crypto market.

Since market information updates daily, regularly checking trusted sources is crucial.