Cryptocurrency investors often tend to seek passive income from the crypto market, especially that of Bitcoin, when the market is in a bearish phase.
Over the years, different strategies such as yield farming, staking, lending, cloud mining, hard forks and airdrops have been adopted by investors to gain extra money or tokens from the crypto tokens they invested in that mechanism.
Hard forks and airdrops are two of the mechanisms that most active users in the cryptoverse can explore for additional tokens in some projects on which they have invested.
The idea behind both hard forks and airdrops is to build hype around a token and promote the popularity of a project. They work differently and exist through unique mechanisms.
Hard forks and airdrops have boosted both developers and users in numerous ways, as they have also exposed them to a lot of risks.
We will discuss how hard forks and airdrops are distinct from each other, how they work and how people can benefit from them in the future.
What Is A Crypto Airdrop And How Does It Work?
The name “airdrop” can be likened to the manna which dropped from heaven, not for the Isrealites this time around but for crypto enthusiasts who are energized by the knowledge of new crypto projects. The amazing thing is that risks and technical know-how requirements are minimum.
A crypto airdrop is basically a kind of crypto token giveaway. It involves the distribution of a particular cryptocurrency token to the token holders of that token.
It is often associated with the launch of a new token or project to gain popularity and visibility in the crypto market which is highly competitive.
Developers and crypto entrepreneurs often “airdrop” extra tokens to existing holders at their convenient time and the volume of tokens rewarded to users is based on the significance of contributions made towards a project.
The motivation behind airdrops is purely for promotional purposes. However, there are two types of crypto airdrops; retroactive and takeover airdrops.
The differences between these two airdrops are largely dependent on the purpose for which they are being offered and the stage at which they are being offered.
Types Of Crypto Airdrop
Airdrops can be retroactive or can be a takeover airdrop.
A retroactive airdrop is the type of airdrop awarded to early users or people who have contributed to a project when an existing blockchain protocol is about to launch a native crypto token.
This type of airdrop is used to gather enough engagements on social media platforms by awarding tokens for retweets on Twitter, creating hype around the incoming token and also serving as a liquidity creation tool.
Takeover airdrops are used for a different reason entirely. Decentralized Finance (DeFi) protocols use takeover airdrops when they want to eliminate competition and attract more users or increase their user base by offering greater rewards than their competitors.
Takeover airdrops are always targeted at users who have engaged largely in activities such as staking. It also focuses on the liquidity providers to secure them from competing DeFi protocols. However, this is a more aggressive form of an airdrop compared to the retroactive form of airdrop.
What Are Hard Forks And How Do They Work?
Blockchain protocols often suffer some changes that produce a new blockchain running in parallel with the original blockchain from which it is generated but the type of utilities it offers to the token holders and users may be different.
An example of a parallel blockchain is the Bitcoin Cash(BCH) fork, a P2P cash system created from what is called a Bitcoin hard fork.
Bitcoin forks are created by changing the base protocol code of a Bitcoin to create a parallel version of it, for an entirely different purpose.
A hard fork is the source of a new crypto token that creates value for the original investors through the native token of the newly created blockchain.
In August 2017, each Bitcoin holder received an equivalent amount of Bitcoin Cash (BCH) tokens which generated a good return, in relation to the $900 listing proof of BCH on many exchanges.
However, some hard forks were not created for a new system. Some originated from a crypto debacle.
An example is the Ethereum hard fork, Ethereum Classic (ETC) which has the native ETC token that can be exchanged freely on cryptocurrency exchanges and also supports different consensus mechanisms.
Hard forks can be of great benefit to investors, with low risks through the increasing number of new blockchain protocols and new units being created.
Pros And Cons Of Crypto Airdrop
There’s no doubt that crypto airdrops are the catalysts for gaining traction to a new token. This method has been known to be used by developers to stimulate the adoption of their crypto tokens.
Crypto firms who want to launch their native token for their DeFi protocol use airdrops to advertise their tokens due to their simplicity and cost-effective nature.
Though it involves expending a lot of tokens for free, it’s only a small fraction of the tokens to be in circulation. It’s surely an excitement to crypto token holders when they see users earn crypto from the free airdrops.
On the negative side, the market value and price of the token can drop if excess tokens are rewarded as airdrops.
Some addresses that got rewarded by the tokens can sell their tokens immediately after it is listed on the various crypto exchanges, this will cause a downward effect on the price of the token.
Pros And Cons Of Hard Forks
Hard forks allow developers to feature new functionalities in the blockchain without changing the original blockchain which may have a user base that would counter the idea.
Token holders and investors who are issued extra hard fork tokens can monetize them immediately or hold them in anticipation of a long-run appreciation.
However, it may not always appreciate, just like the case of BCH which is trading near all-time lows since it was issued in 2017.
On the other hand, a hard fork occurs due to the splitting of the underlying blockchain. This is seen as detriment to the security of the network which renders the blockchain network more vulnerable to attacks. In this case, users of the hard fork token may face a bigger risk of losing their tokens in the light of any attack.
Crypto airdrops are both good ways of making passive income from the crypto ecosystem, especially at a time when developers are launching new projects and blockchain hard forks.
All one needs to do is to make proper research, stay abreast of developments and stay tuned to companies and developers that create airdrops and hard forks to take advantage of them.