What is Snapshotting? - A Beginner’s Guide to Blockchain Records

Snapshots are an integral part of blockchain systems. It is used to document the balance and amount of tokens held, airdrops, token rewards, and governance voting. Snapshotting is a method for recording who owns what on a blockchain at any given time or block height. It is also a way to keep track of the overall quality and balance of token holders, blockchain ledger, and all existing addresses, along with their metadata. 

In this blog, we will take a look at what is snapshotting, how it works, why it is important, and more. 

Let’s take a look!

What is Snapshotting?

In the cryptocurrency industry, snapshotting refers to capturing a record of the blockchain data at a specific timestamp or block height. The record consists of token holdings, addresses, wallet balances, and other on-chain information. It stores the information exactly as it existed at the moment. Even though the blockchain continues to change after that point, the snapshot will preserve the historic reference, and it cannot be altered. 

In the traditional financial systems, records are stored in centralized databases. However, the blockchain snapshots rely on publicly verified data. Anyone can independently confirm the information by looking at the same block on the blockchain. 

How Snapshots Work?

Every blockchain consists of blocks that are added sequentially. Each block contains a set of transactions and updates the balances. A snapshot usually references a particular block number. At that block, the system retrieves all wallet balances and smart contract data relevant to the snapshot. 

Some snapshots are taken automatically by smart contracts, while others are taken off-chain by developers using various blockchain data tools. In any case, a snapshot never freezes the blockchain system. New transactions, transfers, and trading operations all continue as normal. The snapshot only captures the historical data for later use. 

What is Snapshotting Important in the Crypto Industry?

Snapshotting plays a vital role in creating transparency in the cryptocurrency ecosystem. Many cryptocurrency projects rely on snapshots to decide who is eligible for tokens, voting rights, and rewards. Without snapshots, it is difficult to determine who genuinely supported the project at any given stage. 

For traders, snapshots can influence behavior around specific stages of the project. If a project announces that it will take a snapshot for an upcoming reward program, the traders may choose to acquire or hold tokens before the snapshot block is reached. Afterwards, some traders may sell the tokens as the project progresses. 

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Snapshot announcements can temporarily affect the price of the tokens. When traders expect an airdrop or any governance benefits, the demand for the token increases, and prices go up. After the snapshot is taken, the selling pressure increases and prices drop. Snapshots don’t change the token value, they record the data and store it for decision-making. 

Crypto Airdrops 

Snapshots are most commonly used in crypto airdrops. An airdrop is the distribution of free tokens to wallet addresses that meet certain criteria. These criteria often include holding a specific token at the time of a snapshot. Let’s consider the following example:

A project may announce that any wallet holding tokens at block number L will receive tokens in the future. When the snapshot is taken, developers record all eligible crypto wallets and their balances. Even if the user sells their tokens after the snapshot, they may still qualify for the airdrop because the user became eligible earlier. 

Governance and Voting

Decentralized projects often use snapshots for governance decisions. Token-based voting systems need a reliable way to determine voting power. Snapshots ensure that the voting weight is based on balances at a fixed moment, preventing users from buying tokens mid-vote to manipulate the results. 

In a governance system, snapshots help maintain trust. Participants know that voting power is calculated fairly and transparently, based on verifiable blockchain data rather than centralized or adjustable records. 

On-Chain and Off-Chain Snapshots

Snapshots can be taken either on-chain or off-chain. The on-chain snapshots are managed directly by the smart contracts and are embedded in the blockchain system. These are transparent and often used in decentralized governance systems such as DAOs.

Off-chain snapshots are generated by analyzing blockchain data externally and storing the results outside of the blockchain. While the snapshot is still verifiable, they require trust that the snapshot process was done correctly. Many blockchain projects choose off-chain snapshots as they are cost-efficient and more flexible. 

Final Takeaways

Snapshots are a fundamental part of blockchain governance. It records ownership data at a specific moment and keeps the record safe for rewards, governance voting rights, and airdrops. It enables fair token distribution and accountability, while keeping the process transparent across the decentralized system. 

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FAQs

What is snapshotting in the crypto industry?

Snapshotting is the process of recording wallet balances or blockchain data at a specific block to determine ownership at that moment. 

Why do crypto projects take snapshots?

Projects use snapshots to fairly distribute rewards, tokens, or voting rights based on verified blockchain records. 

Does snapshotting affect the user’s ability to trade tokens?

No, snapshotting does not lock or freeze your tokens, and trading continues as normal. 

Are snapshots based on time or block number?

Most snapshots are based on a specific block number because it provides precise and verifiable data. 

Can I sell my tokens after a snapshot and still qualify?

Yes, eligibility is usually determined by your balance at the snapshot and not what you hold in your wallet afterward. 

Do exchanges support snapshot-based rewards?

Some exchanges do support snapshot-based rewards, but many don’t. 

Can snapshot data be changed later?

No, snapshot data is permanent because it is based on immutable blockchain records.