There's no such a thing as free lunch.
The famous quote, which probably originated at a saloon in the middle of nowhere, raises a valid question about cryptocurrency airdrops and giveaways.
You log into Twitter and, if you follow some of the most popular accounts, then you've probably seen something like this:
$30 #Bitcoin giveaway— Crypto Guy (@Crypto_Guy_UK) July 28, 2020
Winner choosen in 3 hours.
Just retweet this tweet ✌
And if you're a crypto trader then you definitely want to check out $BITC (BitCash) this 300k market cap gem. https://t.co/q2ScU6XY6f
Sure looks like free lunch, doesn't it?
As you can see in these two examples, crypto giveaways always involve an action, a conditional thing you must do in order to qualify.
Instead of buying Twitter, Facebook or Google ads, social media marketers will instead spend the ad budget within the community, in the form of a crypto giveaway.
To the marketer, a U$ 100 giveaway is the same as buying U$ 100 in ad impressions, except it often yields a much higher ROI for the same media investment.
Therefore, giveaways can be very profitable when done right!
Also, many cryptocurrency personalities bought Bitcoin when it cost a few hundred dollars. So giving away U$ 100 in BTC means a few satoshi to them while promoting Bitcoin at the same time. Someone's very first cryptocurrency might have been earned via a giveaway!
As you can see, crypto giveaways not only promote whatever product you're marketing, it also helps cryptocurrencies gain wider adoption, making the concept more familiar to end users.
What about airdrops?
In a previous article we discussed Metcalfe's Law applied to cryptocurrencies. In short, network value is proportional to the square of its number of participants.
Bob Metcalfe came up with this theory while working at AT&T. It turns out his formula was able to estimate the company's revenue very accurately for several years in a row - based solely on knowing how many phone line subscribers there were.
While cryptocurrency technology is several generations newer than legacy copper phone lines, Metcalfe's law still applies!
The value of a cryptocurrency is proportional to the square of its number of users.
So, how do you get people to use your newly forked Bitcoin clone? You guessed it - airdrops!
Make some noise on social media, drive some hype, generate FOMO and your airdrop may be successful. If enough users start to transact with your new token simply because they were given some for free, the token may end up listed on a big exchange. The more people use it, the more valuable it tends to become.
Watch out, though!
Some giveaways aren't part of a real marketing campaign, but will try to scam users instead.
We've seen this recently on Twitter in what was, perhaps, the greatest scam of its type.
Some personality's account is hacked and promises to send you free cryptocurrency. All you have to do is send some initial coins and they will supposedly reply back to your sender address with a multiple of the amount you send.
In the 2020 Twitter hack, for instance, the perpetrators were able to raise over U$ 100k worth of Bitcoin using this method.
This is a recurring method: a fake giveaway is promoted using hacked accounts. The user must send some coins in order to prove they own the address where they'll supposedly receive the reward. Boom, the scammer keeps the initial deposit and, obviously, never sends any coins back.
Since cryptocurrency transactions are irreversible, this has, unfortunately, been a very effective method so far.
How does one protect themselves? It's simple. Do not ever send any coins to giveaways. Either it's a giveaway or airdrop, and you just need to provide a deposit address (sending your address is safe), or it's a scam. There is no reason to require any kind of "initial deposit" in any giveaway. When you see this kind of condition, stay away - it's most likely a scam.
So, that's the ELI5 of how airdrops and giveaways work.
While there's still no such a thing as a free lunch, some of these promotions may end up being profitable.
In the end it's an exchange of value : the receiving end agrees to promote something in exchange for some free coins.
Free Lunch Photo Credit: Bram Pitoyo via Flickr