Airdrop definition: The distribution of free cryptocurrencies or tokens to users, usually as part of a promotional event.

An airdrop describes the free distribution of digital tokens to public wallets. In the field of cryptocurrencies, the term airdrop denotes a distribution mechanism where digital tokens are freely provided to a selection of wallet addresses on a blockchain. This process is commonly used across various blockchain networks, including well-known blockchains like Bitcoin and Ethereum.

An airdrop typically occurs in one of two situations. Firstly, an airdrop can occur when a project decides to distribute free tokens to holders of an existing cryptocurrency. This can be a strategy to increase the dissemination and awareness of the new token, making it a key tool for marketing and user acquisition in the cryptocurrency space.

Secondly, an airdrop can also be used to distribute new tokens after a blockchain undergoes a 'fork'. In cryptocurrency terms, a fork represents a divergence in the blockchain where the chain splits into two paths, each following a different protocol. The distribution of tokens following such a fork ensures that the new token has a broad base of holders.

A high-profile example of a recent airdrop is the distribution of UNI tokens by Uniswap. Uniswap is a decentralized exchange on the Ethereum blockchain. In this instance, Uniswap allocated its newly minted UNI tokens to every address that had interacted with its platform prior to a certain date. The result was a distribution of 15% of the total supply of UNI tokens.

In summary, an airdrop represents a method of token distribution within the cryptocurrency landscape. Airdrops serve various purposes, ranging from marketing initiatives and user rewards to the broad dissemination of tokens following a blockchain fork.

Banner prompting investors to read the ultimate airdrops tax guide written by Koinly

The information on this website is for general information only. It should not be taken as constituting professional advice from Koinly. Koinly is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. Koinly is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.
Michelle Legge
By Michelle LeggeHead of Crypto Tax Education
Updated Mar 19, 2024
This article has been fact checked and reviewed as per our editorial policy.