What are cryptocurrency airdrops?

Cryptocurrency airdrops are a marketing strategy crypto projects use to give away free coins or tokens to certain wallet addresses of active users. Airdrops allow users to expand their crypto portfolio without extra costs and earn money by holding these tokens, hoping their value will increase in the future.

Launching airdrops serves several objectives. Firstly, they help create buzz around a project or cryptocurrency. By giving away free tokens, companies can spread awareness and quickly grow their user bases. Airdrops can also boost liquidity as more users start trading the new tokens. Additionally, companies can reward loyal users and foster community building by encouraging participation and interaction with the project.

Individuals typically participate in certain activities, such as joining a project’s social media account, owning a particular cryptocurrency, or engaging with the project’s community. Airdrops are usually small in value — below $10 — and may lack liquidity. To make easy money, some users join an airdrop and sell off the coins immediately, potentially driving the price down.

How to find cryptocurrency airdrops?

Cryptocurrency airdrops are usually announced and promoted to the public to create hype and interest in the particular token or project. Most of these airdrops can be identified by joining project newsletters.

Airdrop announcements are often shared in social media airdrop communities, and they can typically be found on X, Telegram and Discord. Those interested in finding possible airdrops should also keep up with official updates on the project’s website, crypto news and forum discussions.

Many platforms and websites, such as CoinMarketCap, DappRadar and AirdropAlert, can automate airdrop discovery by providing alerts. These tools can help speed up the process and raise the chance of finding high-potential airdrops before the general public does.

Step-by-step guide to generating passive income with airdrops

Generating passive income from airdrops can be a lucrative endeavor. Following the essential steps helps ensure eligibility, secure assets and token gains.

Step 1: Follow airdrop eligibility criteria

Follow the instructions for participating in the chosen crypto airdrop and meet any eligibility criteria, such as holding a minimum amount of cryptocurrency. Verify the duration of the airdrop event and any other specific conditions, such as eligibility requirements and participation steps. The duration of the airdrop event refers to the period during which it is active, and participants can claim their tokens.

Step 2: Choose a secure wallet

Ensure the wallet is compatible with the blockchain network on which the airdropped tokens will be distributed. For example, many airdrops require Ethereum-based wallets such as MetaMask.

A separate crypto airdrop wallet can be explicitly set for airdrops, keeping primary investments separate.

Step 3: Complete tasks

Most airdrops have requirements that must be fulfilled, such as following social media accounts, retweeting posts, creating videos or engaging in discussion in the project’s forum. As such, following the rules established by each airdrop campaign is critical.

Step 4: Verify participation

Certain airdrops require more verification procedures, including completing a Know Your Customer step. When providing personal information, use caution and confirm the project’s validity.

Copy a wallet address, paste it into the airdrop registration form, and ensure it matches the required blockchain network to submit a wallet address for cryptocurrency airdrops.

Step 5: Collect tokens

Keep track of when tokens will be distributed by marking dates on the calendar. Ensure that any communication regarding token distribution comes from official sources.

Verify any contract address or instructions by checking official sources, including the project website, social media accounts and official announcements.

Step 6: Transfer tokens

If a sizable number of tokens have been received, consider moving them to a more secure wallet, such as a hardware wallet, to provide additional protection against hackers.

How to maximize income with cryptocurrency airdrops

Participants can employ various strategies beyond standard airdrop income generation to maximize income with cryptocurrency airdrops.

Use multiple wallets

Create numerous wallets or accounts to participate in an airdrop multiple times. Using multiple wallets can increase the chances of receiving more tokens from airdrops. Beware that some airdrops only allow one participation per active account.

Utilize referral codes

Some campaigns also offer extra airdrop tokens for referrals and social media promotion. Participants can invite friends and post their referral links on social media to get the most out of the airdrop.

Engage in looping

Looping involves lending crypto to a protocol, borrowing against it and restaking the borrowed assets. Repeating this process increases leverage and accrues more points, maximizing airdrop points due to similar borrowing and staking yields.

Target ecosystem protocols

Identifying protocols that serve as the foundation for new ecosystems is another strategy for making the most of crypto airdrops. These protocols often grant airdrops to stakers as new applications utilize their security features, making them prime targets for maximizing airdrop rewards.

Hold tokens

The gains from holding and accumulating airdropped tokens can be very lucrative, especially when a newly launched coin gains a lot of popularity and its price rises in the market. As a token gains traction and trading volume, investors can accumulate high returns and increase their initial holdings.

Participate in staking and yield farming

Stake tokens in designated platforms to earn rewards and participate in yield farming to leverage assets for additional income through liquidity provision and governance participation.

Are cryptocurrency airdrops taxable?

Crypto airdrops are taxable in most cases, but the rules vary depending on the participant’s jurisdiction and the purpose of the airdrop.

In most jurisdictions, including the United States, Australia and the United Kingdom, airdropped tokens are considered ordinary income, similar to a bonus, making them subject to income tax with taxable income equal to the cryptocurrency’s value at the time of the airdrop. Also, when the airdropped tokens are sold, capital gains tax may apply, which in turn may lead to double taxation.

On the contrary, some countries, such as Canada and Germany, do not treat airdrops as taxable income. Tax authorities in different jurisdictions provide guidelines stating that airdrops may not be taxable under certain conditions. Awareness of local tax laws is essential to ensure compliance and proper tax management.