The influx of investors into the cryptocurrency industry has given rise to various new forms of investment. As more blockchain projects began to emerge and offered their digital coins for sale on the market, the idea of investing in them gained more popularity. Unfortunately, despite the current rate of the industry’s development, adoption is slow and the competition to get the attention of investors is tough. As a result, some projects struggle to achieve their soft cap.

To bypass this issue and outperform competitors, blockchain companies must evolve and come up with more creative ways to sell their tokens. There are two main ways that these projects offer their tokens:

WHAT IS AN AIRDROP VS. ICOS?

Since the beginning of 2017, there has been a substantial increase in Initial Coin Offerings (ICO) within the crypto space. Although 2018 is not over, there have been more ICOs during the year than in the whole of 2017. Although ICOs are a great way to offer up coins for sale, many projects find airdrops to be a more efficient way to achieve this. One example is OmiseGO which airdropped its tokens in 2017, to users who were already holders of Ethereum tokens.

A coin airdrop involves the free distribution of digital tokens to users of a particular asset who sign up within a specific time frame. One major reason why airdrops are preferred to ICOs is the current investigation of the latter by the SEC.

Due to the recent scams in the industry, authorities have been conducting investigations to determine whether ICOs can be classified as securities. If they are indeed classified as such, they may face the possibility of strict regulation. While this is great for investor security, it puts restrictions on so many projects. To avoid this scrutiny, developer teams prefer the airdrop route.

There are several reasons why a project may choose an airdrop over an ICO:

  • To even out the current distribution of a token: Sometimes, crypto holders with large balances cause a sense of centralization on the network. By airdropping tokens to other holders on that network, it becomes less centralized.
  • It can be used as an incentive to encourage investors: Distributing tokens to investors encourages them to hold their tokens for longer in anticipation of more rewards down the line. It also has a great social impact and draws investors into the project community.
  • To reward early investors: Airdrops can be used as a way to distribute tokens to early investors who have held the token and supported the project since its creation. Many cryptocurrencies have been known to do this.
  • To draw attention to the new digital asset: It is often difficult to pitch a new asset to investors because of geographic factors and cost. One common trend is for cryptocurrencies to airdrop free crypto coins to users. This creates awareness and gets the asset its first set of investors. The airdrops are usually carried out for users of another more popular cryptocurrency like Ethereum. This process is a substitute for a large part of what would typically be a hefty marketing budget. It also helps with gathering leads for possible business expansion.
  • Hard Forks: During hard forks of larger cryptocurrencies like Bitcoin, there are often airdrops to compensate the users of the forked asset. For example, when Bitcoin Cash was forked from Bitcoin, BTC holders were airdropped the equivalent number of BCH. Some other forks that involved airdrops are Bitcoin Gold, Bitcoin Diamond, and Litecoin Cash.

 

THE PROBLEM WITH AIRDROPS

When combined, all the reasons why airdrops are carried out tend towards one single aim: to build a community around a token and encourage participation. The general belief is that users are more likely to continue spending and buying such tokens because they acquired them for free. However, the opposite is the case: users simply accumulate free tokens without spending them.

This creates an artificial shortage of that cryptocurrency on the open market and may have negative effects on it in both the long and short term. These effects include price issues and a breakdown of unity within the community. This, in turn, leads to several more problems associated with airdrops:

  • The process is too expensive when the costs of token transfer are factored in. Because the users hardly spend airdrop tokens, the process may not be worth the expenses unless ROI is gained from the community building angle.
  • Since users hold on to their tokens, the developer team has problems gathering feedback from the community. This makes it difficult to strategize and negatively impacts the growth of the project.
  • The project developers have to verify every account manually.
  • Unfortunately, most accounts that register for airdrops are bots or spam accounts owned by a small group of people. This defeats the original purpose of distribution.
  • Since the developers find it difficult to collect feedback, they can’t accurately measure returns.

The issues associated with airdrops have been around for a long time. However, a new and more efficient type of this process, known as a smartdrop is gaining popularity in the industry.

WHAT ARE SMARTDROPS?

Smartdrops are a form of airdrop which allows companies to transfer tokens to a target group of users based on a set of predetermined criteria. The model was proposed by Esteban Castano and Rahul Raina to tackle the many shortcomings of airdrops.

Both founders believe in the potential of ICOs and airdrops to jumpstart long-term growth through token distribution to a wide range of people. They also believe that both methods have been unsuccessful mainly due to the fact that most people do not use their tokens. This problem can be solved by using the Smartdrops platform to transfer tokens to the users who are most likely to spend them and promote community growth.

The SmartDrops platform by TRM labs gives blockchain projects the chance to effectively distribute their digital tokens to a wide audience. For example, Dfinity, a blockchain project announced its plans to airdrop $35 million worth of its tokens using smartdrops to users who pass an anti-money laundering (AML) and know-your-customer (KYC) verification process.

The system saves time and money since its design is geared towards ease-of-use and each smartdrop takes less than 5 minutes to launch. The platform also automatically verifies user accounts, taking the burden off the project developers. Blockchain projects are provided with analytical tools on the platform to help them analyze token performance and gather feedback. Its security system also blocks bot and spam accounts from corrupting the process.

FINAL THOUGHTS

Smartdrops are a growing trend in the cryptocurrency industry, and as the terrain becomes more competitive, companies are finding better ways to handle token distribution. While airdrops have been good, their complications far outweigh the positive results they provide. Smartdrops make the process of token transference more automated, cheaper and easier.

It is also great for community building which is the major aim of most blockchain projects at this point. However, as the industry continues to develop at a fast rate, better solutions emerge. While the problems associated with Smartdrops are still being discovered, an even better process may be developed. As long as the goals of token transference are not met, there will always be attempts at a better solution.

Read the original article here: https://www.mintdice.com/blog/smartdrops-new-way-to-airdrop-crypto