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Virtual currency woos Icelanders with free ‘airdrop’

Icelandic citizens will be 31.8 auroracoins richer come midnight on Tuesday, after a gift or "airdrop" by the digital currency provider, which aims to providing a substitute for the Icelandic krona.

Auroracoin — an Icelandic alternative to cryptocurrency Bitcoin, headed by an entrepreneur calling himself Baldur Friggjar Óðinsson — hopes the entire population of 330,000 will claim the 31.8 auroracoins, worth roughly $3623 or 41,215 krona.

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Auroracoin

"The airdrop will be a gift to each and every recipient, for him or her to spend or save," said auroracoin on its website.

"This one-time event will create the conditions for Icelanders to start using the currency, by providing them with a start and making them aware of the currency and its possibilities."

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Auroracoins — which are based on litecoin, another virtual currency — will be distributed using the government's national ID database from midnight.

"Although the thorough registration of the entire Icelandic nation into one database is unfortunate, it creates opportunities to reach a large part of the public through various means," said auroracoin on its website.

It added that using auroracoins would help Icelanders get around the strict currency controls that were instigated to restrain outflows after the country's banking collapse in 2008.

"These controls were supposed to be 'temporary', but as with so many government actions, they remain in place to this day… The power must be taken away from the politicians and given back to the people. Cryptocurrencies are a very important milestone in this fight for liberty," said auroracoin.

Ahead of the "airdrop", the Icelandic central bank issued a warning about the risks of purchasing and conducting transactions in virtual currencies.

"Current Icelandic law does not protect consumers against losses they may suffer from using virtual currency; for instance, if a "market" that exchanges or holds virtual currency reneges on its obligations, or if a payment fails or ends up in the hands of the wrong party… Both the value of virtual currency and unrestricted access to it are entirely without guarantee from one period of time to another," the central bank said on its website last week.

(Read more: Singapore to regulate virtual currency industry)

Virtual currencies allow users to exchange online credits for goods and services. While there is no central bank that issues them, they can be created online by using a computer to complete difficult tasks, in a process known as mining.

On Tuesday, one auroracoin was worth around $11.41 or 1,296 krona, according to coinmarketcap.com.

—By CNBC's Katy Barnato. Follow her on Twitter: @KatyBarnato