If you have to deal with digital assets, to buy, sell or trade them at CEX.IO exchange, for example, you should have come across the terms hard forks and airdrops. Even if you are new to the crypto industry, studying some new terms will come in handy.
Many compelling ways exist for earning passive income through investing in cryptocurrencies. Traditional financial methods are similar to some crypto passive income methods, but some are unique to crypto. This is the case with airdrops and forks – the free distribution of certain tokens to users.
You may have mentioned once that digital currency in your wallet has increased for no reason. However, later, you have it resulting from an airdrop.
Hard forks and airdrops can be compared on some level, which sometimes leads to ambiguity among cryptocurrency holders. Both of these operations have important differences, however.
Let’s find them out together.
Cryptocurrencies offer many compelling ways to earn passive income and make profits through investing.Stephen Webb
Hard Fork: what is it and how to use it?
It’s not a secret that software protocols enable digital assets to function. The protocols may be changed periodically, and the modifications are getting incorporated once a consensus of the client permits them. This separation of existing users and new users is known as a “hard fork.”
A hard fork appears in blockchain when there is a constant split occurring as soon as the code changes. Thus, two paths appear: the one develops into the new blockchain, while the other remains the original blockchain.
Each block of the chain is handled differently as a result of the protocol changes. The modifications may be different, varying from the block size to updating for solving a hack or breach in the network. In other words, the fork occurs when the previous protocol diverges from the new one.
It’s worth adding that not every cryptocurrency wallet or exchange service supports hard forks.
Hard forks: examples
The implementation of a new blockchain protocol on an existing cryptocurrency can be complicated. Next, we’ll review airdrops, which are a common method of delivering goods.
You might find it easier to visualize these logistics with an example you are familiar with like a Windows update addressed to fix a security vulnerability. Certain users will update to the newest version of Windows as soon as it’s released, while others might opt not to upgrade for some time, leaving various versions of the operating system running on different computers.
Nevertheless, that example has two major flaws.
The software updated in newer versions is generally better. However, one of the two outcomes of crypto hard forks doesn’t necessarily mean something is better. There are often two outcomes, depending on how they are intended to be used. Users may prefer different branches of the fork depending on individual preferences. A good example of this is the Bitcoin hard fork that resulted in Bitcoin Cash (BCH) living alongside Bitcoin (BTC). Investor speculation and conversation have increased substantially when Bitcoin has forked. Several Bitcoin forks have occurred over the years, with many of them mostly going unnoticed.
The old operating system cannot be used when upgrading the computer’s operating system. Conversely, a hard fork will result in both the new and the old crypto assets.
Airdrops: what does it stand for?
Cryptocurrency airdrops occur when creators of tokens grant coins to some members of the community free of charge. This involves the distribution of cryptocurrency to a specific society of investors. The creator may offer an airdrop in the form of acquisition through an ICO or a freebie. Tokens in airdrops are traditionally distributed to owners of a preexisting crypto network, like Bitcoin or Ethereum.
Therefore, an airdrop can occur either during the pre-launch stage of a token by inserting a wallet address into the airdrop form, or by keeping an entirely different coin or token.
What’s the intention of Airdrop?
Airdrop aims to increase awareness. A buyer’s primary move in the marketing process is getting informed. The character of an airdrop is fundamentally affected by human behavior since people tend to buy commodities they are familiar with rather than ones they are unfamiliar with. An airdrop, therefore, serves the purpose of providing people with a drive of their tokens, for those in charge of issuing them. In contrast to alternative ad models (such as Google Ads), airdrops are usually a more effective way to promote cryptocurrencies.
Do the hard forks and airdrops influence the market?
A valuable new token backed by a proven protocol can be introduced to the market at every hard fork. The practice has shown that adoption is often lower than anticipated. The new token has lost a lot of value when compared to the initial coin after major hard forks have taken place in the industry.
What is more, the appearance of new altcoins on the market as well as low user adoption can make users sell new coins at a rapid pace. Therefore, the value of the stock drops sharply.
There are, however, exceptions to the rule. Thus, Decred (DCR) launched its virtual currency airdrop in 2016 and distributed about 500,000 USD. The value of the 2016 DCR token has risen from 2 euros to 170 euros today. Also, the initial cryptocurrency token sale by Squeezer (SQR) took place in 2019. Over 20,000 new users were acquired through an airdrop within an hour, which proves that airdrops can be successful in bringing on new players.
Using airdrops as a competitive tool is also possible for crypto projects. A number of airdrop campaigns have been launched by 1INCH, the maker of Uniswap’s competitor Mooniswap, to boost 1INCH’s adoption among Uniswap users.
To sum up
Blockchain protocols undergo hard forks when they alter to generate a parallel blockchain. Bitcoin Cash, the new form of Bitcoin, was a good example of this. The coins of the new blockchain are automatically distributed to users who invested in the prior blockchain before the fork.
The process of an airdrop takes place when cryptocurrency projects deposit tokens directly into a user’s wallet. Typically it happens in exchange for social media promotions or bounties. Some campaigns are designed to encourage users to adopt the system.
One thing to remember: not every digital currency wallet or exchange supports hard forks.