Hard forks and airdrops are passive revenue tactics that include the free distribution of certain coins to users.
When cryptocurrencies such as Bitcoin (BTC) experience bear phases like the one we are currently experiencing, the concept of earning passive income from one’s holdings becomes more appealing to long-term investors.
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In recent years, many methods such as staking, lending, cloud mining, and yield farming have gained popularity and reward investors with money or tokens in exchange for the crypto tokens they put in the mechanism.
However, with hard forks or airdrops, crypto ecosystem participants can hunt for tokens or projects that provide additional tokens proportional to their vested holdings for a variety of reasons.
Despite the fact that both hard forks and airdrops are designed to increase the popularity of a project or serve as part of a promotional effort, they operate differently and are created by entirely separate procedures.
Let us examine what distinguishes crypto airdrops from hard forks and how long-term crypto market investments might benefit from them.
How does a cryptocurrency airdrop function?
Crypto airdrops are viewed as manna from heaven by crypto enthusiasts ready to try with a variety of projects, requiring no technical understanding and posing possibly lower risks.
A crypto airdrop is the free delivery of a cryptocurrency coin or token to existing token holders, sometimes known colloquially as token giveaways. In a market saturated with hundreds of crypto tokens and currencies, the purpose of an airdrop is often to attract additional users.
Purely promotional in nature, users have no control over the timing of an airdrop, which is typically conducted by developers or crypto entrepreneurs to reward existing token holders with free tokens or coins.
The amount of tokens provided is proportional to the amount invested or contributions made to a project, similar to how traditional brands distribute free samples to promote a new product offering.
There are two sorts of crypto airdrops: retroactive airdrops and takeover airdrops, with the primary distinctions being the stage at which they are offered and their intended purpose.
Generally, a retroactive airdrop is announced when an existing blockchain protocol plans to launch its native crypto coin, and it rewards early adopters or those who have contributed to the project prior to a specific date.
It is a widely used method for generating interest in the soon-to-be-launched token. In addition, it acts as a means for creating liquidity and aids in audience interaction by rewarding tokens for retweets, reviews, or even boosting social media followers.
Takeover airdrops are utilized when decentralized finance (DeFi) protocols wish to steal customers from their competitors or boost their chances of retaining them by offering bigger rewards.
Although it is a relatively more aggressive sort of airdrop, takeover airdrops are designed to lure liquidity providers and users who have demonstrated greater interest in activities like staking away from a rival DeFi protocol.
DeFi aggregator 1INCH executed a series of airdrops to entice Uniswap users to switch to its platform, rewarding certain user groups in a series of airdrops and serving as a classic illustration of how free crypto airdrops are used.
Pros and cons of cryptocurrency airdrops:
Crypto airdrops have long been viewed as an unorthodox kind of radical marketing in the crypto sector, but their popularity is growing. Numerous initiatives employ this strategy to promote the acceptance of their new crypto coins.
Airdrops offer superior advantages for crypto entrepreneurs and investors alike, making them the most popular marketing strategy for creating initial enthusiasm and accelerating user traction – two components that are crucial to the success of a new coin.
For crypto companies seeking to create a native token for their blockchain or DeFi protocol, crypto airdrops may be the simplest and most cost-effective form of advertising in the cryptocurrency industry today. Even though it involves expending a large number of tokens for free, these tokens represent a relatively modest part of the total tokens to be introduced into circulation and are a surefire way to generate enthusiasm among other crypto token holders as users win crypto from the free airdrops.
On the other hand, airdrops can have negative consequences if too many tokens are sent as part of the airdrop, thereby diminishing the token’s market value and affecting its price. Furthermore, the majority of addresses that receive the airdrop could sell the tokens as soon as they are listed, exerting additional downward pressure on the token’s price. It is also crucial for users to undertake adequate research to weed out dump airdrops and increasingly sophisticated crypto frauds.
If the token gains in popularity and demand, these airdropped tokens may yield even greater rewards as their value climbs proportionally. Crypto airdrops reward crypto users with free tokens that can be worth hundreds of dollars for just following a project on its different social media accounts or by spreading news about it with friends. There are no requirements or restrictions.
In fact, for crypto wallet holders or those holding specific crypto tokens, airdrops are a terrific method to generate passive income in the cryptocurrency markets and can be a great way to generate profits with essentially no investment. Staying abreast of projects or firms that plan to deliver airdrops and taking advantage of them is all that is required.
Therefore, not only may you profit from crypto airdrops by instantly selling the obtained tokens on a cryptocurrency exchange, but you can also choose to store them for a longer period of time and potentially improve the likelihood of producing even greater returns.
What is a hard fork and how does it function?
More often than not, blockchain protocols are modified to build a new blockchain that runs in parallel with the original but may provide users and token holders a different final benefit.
One of the most renowned examples of a parallel blockchain is the Bitcoin Cash (BCH) fork, which effectively created a P2P cash system from a Bitcoin hard fork.
Related: differences between soft and hard forks explained
Other Bitcoin forks, such as Bitcoin Gold, illustrate how hard forks are established by modifying the code of the base protocol to create a parallel version of it with a different purpose.
Moreover, because the newly constructed blockchain requires a native token for its users to transact with, a hard fork results in the formation of a new crypto token and increases the value of the original currency for those who have invested in it.
In August 2017, each BTC holder received an equivalent number of BCH tokens, resulting in significant gains given Bitcoin Cash’s $900 listing price on cryptocurrency exchanges.
With an increasing number of new blockchain protocols being developed and many more breaking out through hard forks, it is clear to understand how investors might profit from hard forks without taking on excessive risk.
However, not all hard forks begin from a desire to build a new system; others are the result of a crypto-related catastrophe. Consider the Ethereum hard fork Ethereum Classic (ETC), which even supports an alternative consensus method and has a freely-tradable native ETC coin on cryptocurrency exchanges.
Separated from the “official” Ethereum network in reaction to the attack on Ethereum’s most prominent project, The DAO, it released tokens at a 1:1 ratio to all current ETH holders.
The DAO was meant to be a new decentralized business model for commercial and non-profit organizations. However, a security exploit resulted in a few individuals siphoning out one-third of its cash to a secondary account.
When the Ethereum community voted to hard-fork the original blockchain in order to recover the missing cash, the blockchain was split in two, and the unforked branch was called Ethereum Classic.
There are typically numerous opportunities for astute investors to participate in blockchain protocols prior to a hard fork and perhaps profit from the additional tokens on offer. To profit from hard forks, it is essential, however, to undertake extensive research and invest solely in tokens with solid foundations.
Advantages and disadvantages of hard forks:
Hard forks allow developers to add new features without altering the original blockchain, which is particularly useful when the network has a large user base that is opposed to change.
Additionally, it requires less computational resources than a soft fork and gives more anonymity.
Moreover, token holders and investors are awarded extra hard fork tokens, which can be instantly monetized or held for long-term appreciation, a scenario with a high likelihood if the hard fork achieves its aim and obtains notoriety in the cryptocurrency sector.
However, this is not always the case, as BCH demonstrates by trading near all-time lows since its inception in 2017.
In addition to the possibility of a decline in price, users of the hard fork face an increased risk of losing their token holdings in the event of an assault. Due to the fact that a hard fork happens when the underlying blockchain is split, it is commonly viewed as damaging to the network’s security, making it more susceptible to hostile assaults.
This is especially relevant if the split occurs between nodes and miners, as bad actors could utilize their computer power to overpower the network and steal funds.
Regardless of the sort of assault, the goal is either to damage the network’s reputation, which could result in a decline in the price of the native token, or to steal funds from the network and transfer them to accounts on another network.
This would cause investors to lose money on both the hard fork tokens and the original token. Therefore, it is essential to investigate the real improvements achieved in a hard fork and to determine whether the developers have taken the required safeguards to protect the fork from attack.
Investors can profit from hard forks if they stay aware of the most recent developments and recognize the best possibilities to gain bitcoin through hard forks.