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Bitcoin faucets are a reward system, in the form of a website or app, that dispenses rewards in the form of a satoshi, which is a hundredth of a millionth BTC, for visitors to claim in exchange for completing a captcha or task as described by the website. There are also faucets that dispense alternative cryptocurrencies.
Rewards are dispensed at various predetermined intervals of time, as rewards for completing simple tasks such as captcha completion and as prizes from simple games like the bitcoin fidget spinner. Faucets usually give fractions of a bitcoin, but the amount will typically fluctuate according to the value of bitcoin. Typical payout per transaction is less than 1000 satoshi,[note 1] although some faucets also have random larger rewards. To reduce mining fees, faucets normally save up these small individual payments in their own ledgers, which then add up to make a larger payment that is sent to a user's bitcoin address.
As bitcoin transactions are irreversible and there are many faucets, they have become targets for hackers stealing the bitcoins.
- To introduce users to bitcoin: Faucets are a great way to help introduce new people to bitcoin, or to altcoins. A majority of faucets provide information to new users as well as offering them some free coins so that they can ‘try before they buy’, experimenting with a test transaction or two before putting real money on the line. Since this whole experience is so new and a bit complicated to people, who perhaps don’t quite trust it with their hard money, this is a beneficial way to promote digital currency and bring in new users.
- To get traffic: Faucets are high traffic websites. It is not all that difficult to get a huge number of page views per day to a site which is giving away free money. If a website has other content or services to promote to Bitcoin users, especially new users, a faucet is a great way to bring them to make them familiar with a brand name.
- To make money: Making a healthy profit from a faucet site on its own is a lot harder than just making a popular faucet, but it is still possible. There are a lot of these sites around today, so it's a very competitive market, and earning enough from advertising to cover the cost of the coins you are giving away and hosting costs is nearly impossible. Adding additional content to a website, or creating some kind of unique or interesting twist, is the only way to generate an income for a Bitcoin faucet.
It is typical for faucets to have a referral system, where existing users referring new ones are rewarded with a pro rata portion of new users' earnings from the faucet. Unlike illegal pyramid schemes, earnings do not percolate to the top in the chain of referrals. The exact legal status of bitcoin faucets is unclear and can vary by jurisdiction, refer to legality of bitcoin by country.
The setting up of a Bitcoin Faucet involves integrating a payments processor/manager. The owner of the Bitcoin Faucet loads some bitcoin into this payments manager's cryptocurrency wallet. The payout for visitors are given out according to the sites rates/kind of operation.
Advertisements is the main income source of Faucets. The faucets try to get cheap traffic by giving referral commissions. This ever increasing traffic helps then earn more on advertisement revenue. The difference between the cost of Bitcoins invested and the Ad revenue gives the profit. Some Ad networks pay in bitcoins itself. The profit margin for Faucets are very small for most faucets. Only big and established faucets make profit through the huge amount of cheap traffic coming into their site.
- Named after Satoshi Nakamoto, satoshi is the smallest unit of bitcoin. 1 satoshi equals 10−8 BTC.
- Lee, Timothy B. (2014-01-03). "Five years of Bitcoin in one post". The Washington Post. ISSN 0190-8286. Retrieved 2016-01-15.
- "Bitcoinspinner". Retrieved 29 October 2017.
- Jason Mick (12 June 2011). "Cracking the Bitcoin: Digging Into a $131M USD Virtual Currency". Daily Tech. Retrieved 30 December 2014.
- Andresen, Gavin (1 March 2012). "Bitcoin Faucet Hacked". GavinTech. Retrieved 30 December 2015.
- "The Complete Guide to Making Money from Bitcoin Faucets". 99 Bitcoins. Retrieved 2016-01-15.