Hard forks and airdrops are types of passive revenue schemes that are effectively free token offerings to users.
When cryptocurrencies such as Bitcoin (BTC) experience bear markets such as the one we are currently experiencing, the prospect of receiving passive income from one's holdings becomes even more appealing to long-term investors.
Staking, lending, cloud mining, and yield farming are some of how have gained popularity in recent years, and they entail compensating investors with money or tokens in exchange for the crypto tokens put in the mechanism.
Users that are engaged in the crypto ecosystem, on the other hand, can hunt for tokens or projects that give extra tokens in proportion to their vested holdings as a reward for a number of reasons via hard forks or airdrops.
Because both are designed to increase the popularity of the project or as part of a promotional effort, hard forks and airdrops function differently and emerge through entirely separate methods.
Let's look at what distinguishes crypto airdrops from hard forks and how they might help long-term investors in the crypto market.
What exactly is a cryptocurrency AirDrop and how does it work?
Crypto airdrops are regarded as manna from heaven for crypto enthusiasts eager to try out new projects because they need no technical expertise and possibly decrease risks.
A crypto airdrop is a free delivery of a cryptocurrency coin or token to existing token holders, sometimes known colloquially as token giveaways. An airdrop is typically connected with the debut of a new project or cryptocurrency, with the goal of increasing user adoption in a market crowded with thousands of crypto tokens and coins.
Users have little influence over when an airdrop occurs, and it is often done by developers or crypto entrepreneurs to reward existing token holders with extra tokens or coins for free.
The number of tokens distributed is determined by the amount invested or contributions made to a project, similar to how traditional businesses offer freebies to popularize a new product offering.
There are two sorts of crypto airdrops: retroactive airdrops and takeover airdrops, with the main distinctions being the stage at which they are offered and their specialized purpose.
A retroactive airdrop is typically announced when an established blockchain protocol intends to launch its own crypto coin and rewards early adopters or those who participate.
It is a popular strategy for raising awareness of a soon-to-be-launched token. Meanwhile, it acts as a liquidity generation mechanism and promotes audience involvement by rewarding tokens in return for retweets, feedback, or even boosting social media followers.
Takeover airdrops are used when decentralized finance (DeFi) protocols wish to lure customers away from competitors or boost their chances of keeping them by giving higher rewards.
Takeover airdrops, while a more aggressive type of airdrop, are aimed at liquidity providers and users who have demonstrated increased interest in activities like as staking in order to lure them away from a rival DeFi protocol.
DeFi aggregator 1INCH used a series of airdrops to entice rival Uniswap users to switch to its platform, rewarding certain user sets in a series of airdrops and serving as a classic example of how free crypto airdrops are used.
The Benefits and Drawbacks of Crypto Airdrops
Crypto airdrops have long been seen as an unconventional kind of radical marketing in the crypto realm, but they have grown in popularity. This strategy is used by several projects to promote the acceptance of their new crypto coins.
Airdrops provide exceptional benefits for both crypto entrepreneurs and investors, making them the most favoured marketing technique for generating initial enthusiasm and catalyzing user growth – two components vital to the success of a new coin.
Crypto airdrops are perhaps the easiest and most cost-effective way of promotion in the crypto market today for crypto enterprises looking to launch a native token for their blockchain or DeFi protocol. Despite the fact that it entails expending a large number of tokens for free, these constitute a relatively small portion of the total tokens to be brought into circulation and are a sure-fire way of generating excitement among other crypto token holders as they see users earn crypto from free airdrops.
On the other hand, airdrops can have a negative impact if too many tokens are distributed as part of the airdrop, diminishing the market value of the token and lowering its price. Furthermore, most of the addresses that get the airdrop may sell the acquired tokens as soon as they are announced, putting downward pressure on the token's price. Users must also undertake adequate research to avoid dump airdrops or crypto frauds, which are becoming increasingly complex over time.
If the token's popularity and demand rise, these airdropped tokens may provide even higher profits as the token's value rises in tandem. Crypto airdrops reward crypto users with free tokens that may be worth hundreds of dollars merely by following a project on its different social media accounts or by sharing news about it with friends.
Indeed, airdrops are a terrific opportunity for crypto wallet users or those holding specific crypto tokens to make good returns on what is essentially a zero investment and may be a great way to generate passive income in the crypto markets. All that is required is to keep an eye on initiatives or businesses that are about to launch.
Thus, you may profit from crypto airdrops not only by instantly selling the obtained tokens on a crypto exchange, but you can also choose to store them for a longer period of time, possibly increasing your chances of producing even higher profits.
What exactly are hard forks and how do they function?
Most blockchain protocols are modified to create a new blockchain that runs in parallel with the original but may differ in terms of the end utility that it provides to users and token holders.
One of the most visible examples of a parallel blockchain is the Bitcoin Currency (BCH) fork, which created a P2P cash system from what was effectively a Bitcoin hard fork.
Other Bitcoin forks, such as Bitcoin Gold, show how hard forks are established by modifying the code of the underlying protocol to create a parallel version of it that is meant for a different purpose.
Furthermore, because the newly constructed blockchain requires a native token for its users to transact with, a hard fork results in the development of a new crypto token as well as the creation of value for those who invested in the old currency.
In August 2017, each BTC holder got an identical quantity of BCH tokens, producing large gains considering Bitcoin Cash's listing price of $900 on cryptocurrency markets.
With a rising number of new blockchain protocols being developed and many more branching out via hard forks, it is clear to understand how investors might profit from hard forks without taking on significant risks.
However, not all hard forks are the result of a desire to build a new system; others are the result of a crypto disaster. Consider the Ethereum hard fork, Ethereum Classic (ETC), which has a distinct consensus method and a native ETC coin that can be freely transferred on cryptocurrency exchanges.
It sprang from the "official" Ethereum network in reaction to the attack on Ethereum's most renowned project, The DAO, and distributed tokens in a 1:1 ratio to all existing ETH holders.
The DAO, which was meant to be a new decentralized business model for commercial and non-profit enterprises, was susceptible to a security attack, which resulted in a few people siphoning out one-third of its cash to a secondary account.
When the Ethereum community opted to hard-fork the original blockchain in order to recover the lost funds, the network was divided into two branches, with the unforked blockchain called Ethereum Classic.
There are frequently opportunities for discriminating investors to participate in blockchain protocols prior to a hard fork and perhaps benefit from the additional new coins on offer. However, in order to profit from hard forks, it is critical to undertake extensive research and invest solely in tokens with solid fundamentals.
Hard fork advantages and disadvantages.
Hard forks allow developers to add new functions without modifying the original blockchain, which is especially useful when the original blockchain has a large user base that does not want any modifications done.
It also requires less processing resources than a soft fork and gives better privacy.
Furthermore, token holders and investors are given additional hard fork tokens that may be instantly monetized or stored for long-term appreciation, a situation that is highly likely if the hard fork achieves its goal and gets notoriety in the crypto market.
However, as evidenced by BCH, which has been trading near all-time lows since its release in 2017, this may not always be the case.
Aside from the danger of price erosion, users of the hard fork are more likely to lose their token holdings in the event of an assault. Because a hard fork happens as a result of the underlying blockchain being divided, it is frequently seen as harmful to network security, making it more open to malicious assaults.
This is especially true if the split happens between nodes and miners, since it exposes the blockchain and its fork to bad actors who may use their computer power to bypass the network and steal cash.
Regardless of the sort of assault, the goal is to either damage the network's reputation, which might cause the native token's price to fall, or to steal funds from the network and reroute them to accounts on another network.
As a result, investors would lose money on both the hard fork tokens and the original token. As a result, it is critical to investigate the real improvements achieved in a hard fork and if the developers have taken the required safeguards to protect the fork from any assault.
Investors may gain from hard forks if they remain up to date on the newest developments and identify the best opportunities to earn cryptocurrency through hard forks.
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