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Cryptocurrency Airdrops: What They Are and How to Get Them

A cryptocurrency airdrop involves a platform depositing a (new) token into participants’ wallets.

It’s that simple. However, airdrops should be distinguished from hard forks. While hard forks usually also lead holders to receive a new cryptocurrency, they only occur when a blockchain splits into two competing chains, usually as a result of some controversy over how to update its protocol. In contrast, an airdrop does not involve a hard fork.

A cryptocurrency airdrop is basically a means of creating two things for a new coin:

  • 1) a marketplace, which will provide a new token – and its native platform – with liquidity; and
  • 2) an ecosystem of holders, who can use the token to interact with its platform.

Either way, the platform that conducts the airdrop will take advantage of this, although it might seem like it’s giving things away for free. At the same time, participants receive an asset that could increase in value over time.

How do I qualify for an airdrop?

There are various ways to qualify for a cryptocurrency airdrop. The most common involves holding a minimum amount of another cryptocurrency in an eligible wallet.

For example, in November 2021, OMG token holders of the OMG network were able to participate in the aerial launch of the Boba network for BOBA. If you have held OMG with a participating exchange (including Binance, Crypto.com, Huobi, and numerous others), or if you have transferred OMG to an address on the Boba network, you will receive BOBA on a 1:1 basis.

In this case, participants had to hold OMG in these places during the period of a “snapshot” of the Ethereum blockchain (on which OMG and BOBA operate). If they held OMG in suitable positions during this snapshot, they would receive an equal amount of BOBA a week later.

Most other cryptocurrency airdrops run along similar lines, with the need to hold a particular token in a particular place at a certain time usually being the key theme. However, some airdrops may be slightly different.

To take another example from 2021, the airdrop for Morpher (MPH) involved only creating a wallet and completing a know-your-customer (KYC) check, with holding another cryptocurrency unsolicited. Other airdrops involve posting a platform on various social media platforms, while those organized by certain exchanges may ask you to trade a certain amount of a certain token before an expiration.

There are a number of places that curious investors can visit to check out upcoming airdrops. These include airdrops.io, icomarks.com, airdropalert.com, and CoinMarketCap, which offer lists of future airdrops and details on how you can get involved.

Is there a chance I earned airdrops that I didn’t claim?

Given that a large number of airdrops
allow you to participate simply by virtue of holding a particular token with an eligible exchange at the time of a snapshot, there’s a very good chance you may have earned airdrops that you haven’t claimed yet.

If you have potentially earned airdrops through an exchange, check your account with it. For example, if you heard that there was an airdrop for BOBA, go to your exchange account, check the deposit page, and see if any BOBA was deposited in a BOBA address that the exchange may have created for you.

Similarly, if you feel that an airdrop was open to anyone who owned a particular third-party wallet, check that wallet. And regardless of the particular conditions, if you know that you have met them, try to contact the parties involved in the management of the airdrop (be it an exchange or a platform).

Are there countries that restrict airdrops?

Yes, some countries tend to restrict cryptocurrency airdrops. For example, the aforementioned Morpher airdrop excluded anyone from the following countries:

United States, Afghanistan, American Samoa,
Bahamas, Botswana, Democratic People’s Republic of Korea, Ethiopia, Ghana, Guam, Iran, Iraq, Libya, Nigeria, Pakistan, Panama, Puerto Rico, Samoa, Saudi Arabia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, U.S. Virgin Islands, Yemen

Nations restrict airdrops for various reasons, but in the United States the main reason residents cannot participate is because of securities laws. In fact, airdrop tokens or tokens sold as part of a mass sale are likely considered by the Securities and Exchange Commission (SEC) to be unregistered securities. This would then open anyone who organized an airdrop to legal action.

While the US has not banned airdrops, other nations have done so, with China being the most obvious example. Therefore, anyone caught participating in an airdrop in such a country runs the risk of being prosecuted.

Are airdrops usually taxed?

In many nations that have begun updating their tax laws or regulations to account for cryptocurrency, airdrops are generally taxed.

In the United States, airdrops are taxable upon receipt as ordinary income. In other words, if you receive airdrop tokens that, at the time of airdrop, are worth $100, this $100 will be added to your taxable income.

Other nations take a different approach to airdrop tokens. In Canada and the United Kingdom, for example, airdrop tokens are usually subject to capital gains tax, with the taxable amount calculated at the time of sale. So, if you receive a token that was initially worth £100 at the time of receipt, but then sell it later for £1000, £900 will be added to your taxable earnings.

In summary, you are likely to be responsible for some form of tax if you receive an airdrop. Then check with your local or national tax authority for more details or with a qualified tax expert.

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