Various methods of passive income like mining, yielding, staking, and lending have become quite popular in recent years, and that’s not surprising—who doesn’t like the idea of passive crypto income?
In this article, we will take a look at these two methods of crypto passive income and try to understand their pros and cons. So let’s dive in!
What are forks and how do they work?
First and foremost, let us define forks and when they occur.
To put it simply, forks refer to a split in the blockchain network — for instance, in Bitcoin or Ethereum — but they can happen on any blockchain platform.
There are two types of forks that exist in the crypto space: soft forks and hard forks.
- A “soft fork” refers to a backwards-compatible, upgraded version of the existing blockchain. Soft forks are used when the community wants to add some new functions and features and to fix the issues and bugs or upgrade security.
An example of a soft fork is the Segregated Witness (SegWit) Bitcoin protocol update of 2015. The creators of the SegWit update found out that signature data comprises about 65% of a transactional block. Therefore, SegWit proposed to increase the effective block size from 1MB to 4 MB. After the soft fork, the old Bitcoin blockchain was able to accept new 4MB blocks and 1MB blocks at the same time, thus increasing the speed of transactions.
- A “hard fork” happens when radical changes are made within the software, and the new version is no longer backward-compatible. When a hard fork is done, a blockchain splits into two versions, a new one and an already existing one. During the hard forks, sometimes a completely new cryptocurrency is created, with its own set of rules, functions, and features. Bitcoin Gold, Bitcoin Cash, and Ethereum Classic are examples of hard forks.
In the case of soft forks, you should see them as software upgrades, just like the ones that upgrade your smartphone OS or drivers for your GPU. Soft forks are typically implemented by the developers themselves, although they are brought up together with the community.
In the case of hard forks, anyone who knows how to code and wishes to make drastic improvements to the existing software can do that and then propose this updated and improved version of the blockchain network to the public, so hard forks can be done not only by the original developers of the blockchain, but by those who can code as well.
The issues of hard fork coins
The problem with new assets that are delivered together with hard forks is that there is a high chance of price erosion since hard forks usually cannot compete with their original predecessors in terms of popularity, technology, and investor adoption.
So, when investors and traders claim their new assets from hard forks, they should consider selling them as soon as possible, because in most cases, the hype fades quickly and the hard fork goes unnoticed.
Another issue is security. A hard fork takes place as a result of the blockchain being split, which is frequently seen as being dangerous for network security, since that makes them more vulnerable to malicious attacks.
This is particularly true if the split occurs between the miners and the nodes, as it exposes the blockchain and its fork to hackers and thieves who could use their computing power to overcome the network to steal funds.
How can you earn with hard forks?
It is crucial to know that with hard forks, investors and traders should first have the assets of the original blockchain in order to get access to the hard forks’ assets. But how can you know if and when a hard fork will happen?
The best way to know for sure is to regularly check crypto related websites, like Cointelegraph, Coindesk, Coinmarketcap and follow the crypto community’s social media channels in Twitter, Discord and Telegram to know the news about upcoming hard forks beforehand.
Alternatively, you can search for special web sites that can provide info on upcoming halvings and forks. For instance, Nicehash shows the crypto halving and forking countdowns, so that might be convenient in case you don’t want to spend much time studying numerous sources on the internet.
Perhaps one of the most well-known hard fork is Bitcoin Cash that was created back in 2017.
It was designed to be a quick and cheap payment system, with transaction fees less than one cent and transaction confirmation times less than a few seconds.
Bitcoin Cash (BCH) works exactly the same as Bitcoin, although it does not utilize SegWit updates. Both Bitcoin and Bitcoin Cash have a hard cap of 21 million assets, use nodes to validate transactions, and use the proof-of-work (PoW) consensus algorithm.
However, BCH operates faster and has lower transaction fees than its predecessor, thanks to the larger block size — first it was 8 MB, then it was increased up to 32 MB.
Back at that time, Bitcoin holders could receive one BCH for each BTC they own, but the owners had to keep their BTC in the crypto wallets, not on exchanges. So yes, you read it correctly – every owner of BTC before the fork could find themselves as owners of both BTC and BCH when the fork finally happened.
Another example is EthereumPOW, a hard fork of Ethereum that continues to run on a proof-of-work mechanism. ETHW is a native token of a public chain, not an ERC20 token, so it doesn’t have the contract address.
Ethereum went through the Merge not so long ago, so now it uses proof-of-stake consensus mechanism, instead of proof-of-work, thus it cannot be mined. Chinese miner Chandler Guo didn’t like the idea of losing profit from mining, so he decided to create a hard fork of Ethereum, known as EthereumPOW.
Just like with Bitcoin Cash, any address that had ETH on the Ethereum mainnet before the snapshot could claim the equivalent number of ETHW on the EthereumPoW mainnet.
Still, investors should keep in mind that not every hard fork results in creating a new cryptocurrency. For instance, Ethereum’s hard fork London that happened in August, 2021, didn’t bring along any new assets, and it was mainly upgrading the original Ethereum platform.
What are airdrops and how do they work?
A crypto airdrop, unlike hard forks, is a free distribution of digital assets by a blockchain project that aims to gain and incentivize a user base. Usually, the goal of airdrops is to increase awareness, grow the community, and create network effects.
Airdrop helps to promote the project in its early stages, which in turn can lead to increased usage and demand for its currency.
This kind of promotion actually makes sense, especially in modern days crypto space when there are nearly 9,000 cryptocurrencies available on the market. In addition, a crypto project simply cannot survive without having a decent amount of users, so airdrops can somewhat help in resolving this issue at the first stages of project’s life.
There are two types of airdrops that can be found across the crypto market – retroactive and takeover airdrops.
- Retroactive airdrop refers to the airdrop that is announced when an existing crypto project is planning to unveil its native token; it is commonly used as a reward for early adopters or those investors who have contributed to the project prior to a particular date. So the best way to qualify for a retroactive airdrop is to use nascent projects.
For instance, back in September 2020, when Uniswap DEX started to operate in the DeFi space, it airdropped 400 UNI – its native token – to everyone who tried to use it. Back then, 400 UNI was equal to around $1,000. - Takeover airdrop refers to the airdrop performed by DeFi protocols and it is usually aimed at snatching users from the competitors. This type of airdrop should be seen as a form of aggressive marketing, when liquidity providers and most active users are taken away from one project to its competitor.
Perhaps the most notable takeover airdrop was performed by 1INCH DEX: they conducted a number of airdrops to Uniswap users to snatch them from Uniswap DEX starting from late December 2020, and continued to do so for several weeks, up until mid February, 2021.
For instance, with the last airdrop, those traders who were interacting with Uniswap in at least 20 separate days and have done at least three trades in 2021, could receive 240 1INCH tokens, which were equal to $1,350 back then. The only thing those Uniswap users had to do is to connect their wallet to 1INCH and the protocol would recognize their previous activity and after that grant access to the airdrop.
Even though the case with 1INCH and Uniswap showed that the crypto space can be challenging for projects that compete with each other in an attempt to capture the headlines and gain as much attention and users as possible, we should look at airdrops from the common user perspective because they can take advantage of them. We will take a look at them down below, but first let’s take a look at the issues an airdrop might have.
The issues of airdrops
Airdrops may look like a win-win method for both crypto developers and investors: the first can promote their product efficiently, aggressively, and with little to no costs, while the latter can get cryptocurrencies literally for free. However, there is a catch.
Airdrops can have a negative impact if there are too many tokens distributed as part of the airdrop: this can dilute the market value of the assets, affecting the token’s price.In addition to that, most of the traders that receive the airdrop could sell the received tokens right away once they received them, which would also exert downward pressure on the token’s price. Moreover, just like hard forks, airdrops might also have a security issue.
For example, last year Malwarebytes Labs released a report, saying that there was an alarming rise in airdrop phishing attempts. This was going along with the hype around Yuga Labs’ APE NFT collection.
Hackers repurposed old unused Twitter profiles with a blue check, bought a certain amount of bot-followers, then uploaded some Ape NFT pics in their accounts to make it look like they are legit founders of Yuga Labs.
Then they were creating websites with a less common domain extension like dot.art, dot.biz, or dot.io.
On these websites, unsuspecting users were asked to ‘connect their wallet’, and in case they did, all their NFTs and crypto funds were instantly drained. One of the investors lost a Bored Ape Yacht Club NFT worth 102 ETH ($316,000).
This is just one of the examples of airdrop scams that should remind investors to always do their due diligence if they don’t want their wallets to be drained.
How can you earn with airdrops?
Even though airdrops may seem like easy money for some people, you still have to do some things on your end first.
Some projects will inform about airdrops in their social media accounts, but in case you don’t have too much time to spend on social media waiting for the announcements, you can always check special portals that can alert you about the upcoming airdrops.
Airdrops.io is one of the largest crypto airdrop aggregators in crypto space that can guide you through any type of airdrops – holder airdrops, potential airdrops, upcoming airdrops – you name it.
Airdropsmob portal has great functionality, as well as search and filtering features that can help you sort airdrops by value, listings, requirements and so on.
Airdropalert is also a major airdrop tracker that also provides crypto news, blockchain guides, as well as a comprehensive FAQ that can give some insights about crypto-related topics.
Also, you have to stay on high alert if you don’t want to fall for a scam. Don’t believe someone who DMs you on Twitter, Telegram, or any other social media platform saying that you need to visit some shady website to get your airdrop reward, because this will almost certainly end up being a scam.
The best way to look for legitimate airdrops is to look for them on the above-mentioned portals or invest in a project in its early stages.
Final thoughts
So is it possible to make passive income with hard forks and airdrops? The short answer is yes, it is possible to make money with these two methods. The longer answer is that it will take some time, effort, and money as well before you’ll know how to do this the right way.
You’ll have to invest some time learning first about hard forks and airdrops, which requires reading up on crypto news sites, social media channels and airdrop portals. You’ll also have to invest your funds in the process by buying cryptocurrencies.
However, once you’ve got the hang of it, you can start earning passive income by investing in coins that are likely to increase in value when they get forked or air dropped.