Airdrops and hard forks are types of passive income strategies that significantly free giveaways of specific tokens to users.
Many people today are interested in knowing how to earn crypto passive income with airdrops and forks.
When digital currencies like Bitcoin (BTC) undergo bear phases like the current phase, the idea of earning passive income from your holdings becomes all the more attractive for long-term investors.
Various methods such as lending, staking, cloud mining, and yield farming have become popular in the last few years. It involves rewarding investors with tokens or money for the crypto tokens being invested in the mechanism.
However, with airdrops or hard forks, active users in the crypto ecosystem can forage for projects or tokens, offering additional tokens in proportion to their bested holdings as a reward for various reasons.
A Crypto airdrop is a distribution of a cryptocurrency token or coin to existing token holders, also called token giveaways colloquially. Usually associated with launching a new cryptocurrency or project, the aim of airdrop is to get more user traction in a market with thousands of crypto coins and tokens.
It is promotional, and its users do not have control over when an airdrop may happen. It is usually done by crypto entrepreneurs or developers to reward the existing token holders with more tokens or coins for free.
The tokens awarded are based on the invested number of contributions to a project. It is similar to how traditional brands offer freebies to popularize a new product.
There are two major crypto airdrops: Retroactive drops and takeover airdrops. Their main differences are the stage where they are being offered and their purpose.
Generally, a retroactive airdrop is generally announced when an existing blockchain protocol is planning to reveal its native crypto token. It rewards early users or those who have contributed to the project before a specific date.
It is one of the very popular tools for creating hype around the soon-to-be-launched token. Meanwhile, it also serves as a liquidity creation mechanism. Also, it helps with audience engagement, thereby awarding tokens in exchange for feedback, retweets, or even increasing followers on social media.
Takeover airdrops are employed when DeFi (decentralized finance) protocols want to take away users from the competition or increase their chances of retaining them by offering greater rewards. While it is a more aggressive form of an airdrop, takeover airdrops are targeted at liquidity providers.
Advantages of Crypto Airdrops
- Crypto airdrops are becoming increasingly popular. Various projects use this method to spur the adoption of their new crypto tokens.
- Airdrops offer great benefits for crypto entrepreneurs and investors, thereby making them the most preferred marketing tool for creating initial hype and catalyzing user traction, which are the two most important elements for a new coin’s success.
- Crypto airdrops are the most cost-effective and simplest mode of advertising in the crypto world. These form a small portion of the tokens brought into circulation and are a great way of generating excitement in the crypto market as crypto token holders earn crypto from free airdrops.
Disadvantages of Airdrop
- If too many tokens are given as a part of the airdrop. This dilutes its market value and affects its price in the process. Furthermore, most addresses that receive the airdrop can sell the received tokens immediately once listed.
- This exerts downward pressure on the price of the token. It is also important to conduct research to weed out dump airdrops and avoid scams.
Blockchain protocols undergo alterations for producing a new blockchain that runs parallel with the original. However, it may differ in terms of the end utility it offers users. One of the obvious examples of a parallel blockchain is the BCH (Bitcoin Cash Fork), thereby forming a P2P cash system in the process from a Bitcoin hard fork.
There are other Bitcoin forks like Bitcoin Gold. They show how hard forks are made by changing the base protocol’s code to create a parallel version for a different purpose.
Furthermore, this newly created blockchain requires a native token for its users to transact with, a hard fork resulting in a new crypto token, thereby creating value for those interested in the original coin.
How does it work?
Not all hard forks arise from an intention of creating a new system, with some being the product of a crypto debacle.
In reality, it is intended as a new decentralized business model for non-profit and commercial entities, the DAO was subject to a vulnerability attack that led to a few users siphoning off 1/3rd of their funds to another account.
The original blockchain split into two branches to restore the lost funds. It was renamed Ethereum Classic.
Various opportunities for investment in blockchain protocols before a hard fork for discerning investors are available. Potentially, It takes advantage of adding new tokens on offer.
But, it is essential to conduct thorough research and invest in those tokens with sound fundamentals for making money from hard forks.
Pros of hard forks
- Provide an opportunity to add new functionalities without altering the real blockchain, particularly when it has a huge user base that might not like any changes.
- Involved less computational power than employing a soft fork
- Provides more privacy
- Can be monetized immediately or held to benefit from long-term appreciation
Cons of the hard fork
- Higher risk of losing their token holdings
- Detrimental to the security of the network
- Vulnerable to malicious attacks
- Investors lose capital on the hard fork tokens and the original token.
Investors benefit from hard forks if they start up-to-date with the latest developments and spot the right opportunities to provide income by earning cryptocurrency via hard forks.