Cryptocurrencies offer many compelling ways to earn passive income and make profits through investing. Some crypto passive income methods are similar to traditional finance, but some are unique to crypto. Such are hard forks and airdrops — which are, simply put, free distributions of certain tokens to users.
What are Hard Forks and Airdrops?
Forks occur when a blockchain’s protocol changes to form a new blockchain that runs parallel to the original. The purpose is often to create a new protocol that will meet the change requests of certain users of the original blockchain, such as creators, investors, and miners.
There have been notable examples of hard forks in the industry. This includes the 2017 Bitcoin (BTC) fork which created Bitcoin Cash (BCH). That network change increased block sizes to 36 MB up from Bitcoin’s 1 MB. There were many other bitcoin forks that led to the creation of such coins or tokens as Bitcoin Gold.
In contrast, airdrops occur when the issuer deposits new coins directly into a user’s wallet. Like hard forks, airdrops might coincide with users seeing new digital currencies become available on the market. Though, the reason for their existence and how they are distributed are quite different.
With an airdrop, the issuer often deposits the tokens as part of a promotional campaign. Projects might offer airdropped tokens to users in exchange for bounties or social media promotion.
How do Forks & Airdrops affect the Cryptocurrency Market?
Every hard fork presents the opportunity for a valuable new token backed by an industry-supported protocol to be embraced by the market. In practice, adoption can be less than anticipated. Several major hard forks in the industry have seen the new token lose much of its value when compared to the initial coin.
Such was the case with the Bitcoin to Bitcoin Cash hard fork in 2017. Bitcoin Cash eventually lost over 80% of its value as uninterested Bitcoin holders rushed to sell off their token holdings quickly. Similarly, Ethereum Classic (ETC) holds a value of about 66 dollars compared to Ethereum’s (ETH) value of 2,280 USD (as of May 30, 2021).
The same fate can be true of newly created coins released via airdrops. Flooding the market with new altcoins coupled with low user adoption can result in users selling these new tokens quickly. This, in turn, leads to a sharp decrease in value.
This, however, is not always the case. In 2016, the recently launched virtual currency Decred (DCR) airdropped 258,0000 DCR or about 500,000 eur. Today, the 2016 DCR token value of 2 eur has risen to 170 eur. Squeezer (SQR) held an initial crypto token sale in 2019. Then, they released an airdrop that garnered over 20,000 new users within an hour, proving airdrops could successfully bring on new users.
Crypto projects can also use airdrops to drive market competition. 1INCH, the maker of Uniswap competitor Mooniswap, has released several airdrop campaigns targeted at Uniswap users to bolster 1INCH’s adoption.
How can Investors Benefit from Forks & Airdrops?
If you want to use hard forks and airdrops as a way to earn passive income, the good news is that it can be a relatively easy and hands-off process. It is essential to do research and familiarize yourself with the market to best capitalize on possible gains. When receiving extra tokens through either a hard fork or airdrop, you should ask the following: hold, sell, or reinvest?
With both hard forks and airdrops, researching the market potential and user adoption will give guidance into whether it is wise to hold or sell the token. As new adoption can be difficult to gauge and airdrops can leave users with unwanted tokens, there is a market tendency to sell these coins quickly. That said, examples like Squeezer and Decred show that these campaigns can work. Moreover, they can bring an incredible add-in value to one’s crypto holdings.
Another option is to reinvest these tokens if the token or network supports staking. Thinking of these “free” tokens as a vehicle for further investment in passive income projects might provide the most significant return in the long run.
Users interested in earning a passive income through upcoming airdrops can check out airdrop aggregators. They compile thorough lists of currently running campaigns. There is also plenty of other ways to earn passive income with cryptocurrencies and invest long-term.
Hard forks occur when a blockchain protocol alters to create a new blockchain that runs parallel to the original. A good example of this was the 2017 Bitcoin hard fork that created Bitcoin Cash. Users who invest in a blockchain before a hard fork will automatically receive the tokens of the new blockchain.
Airdrops occur when crypto projects directly deposit tokens into a user’s wallet. It often happens in exchange for bounties or social media promotion. There can be other campaigns that are designed to encourage user adoption.
It’s worth adding that not every cryptocurrency wallet or exchange service supports hard forks. Coinmotion has supported the biggest Bitcoin and Ethereum hard forks. In the future, we are not planning to do so. Users can transfer some of their funds to other wallets if they want to participate in other forks. Meanwhile, on Coinmotion, you can store cryptocurrencies safely and earn interest on BTC, ETH, and a few other cryptocurrencies.