How to earn crypto: Earning from owning

What you'll learn

  • Why crypto relies on users to organically increase adoption
  • The benefits of engaging with emerging crypto communities
  • The concept of an Airdrop & why they are used
  • How airdrops work & how to participate

If you’ve bought your first cryptocurrency and stored it in your wallet, congratulations: you’re officially a crypto user and part of the community. You’re already ahead of the curve, in adopting an invention that most of the world has yet to experience.

Of course owning has its own set of risks, as the cryptocurrency you have bought might decrease in value, and requires you to understand how to properly secure it.  However, alongside the potential risks there are rewards from ownership, beyond the potential for price increase.

The fact that you own cryptocurrency, and know a little about how the ecosystem works, is an itself an asset. Bitcoin only reached the stage it is at today by communities forming around it to discuss, improve and raise awareness of it by telling others.

There’s no obligation to tell anyone that you’re a cryptocurrency user. In fact, many people choose to keep this private, for security reasons. That’s your decision. Of course, you can discuss Bitcoin and the benefits it provides with people without disclosing that you are a hodler.

You’ve heard the phrase “money makes money.” Well, one of the coolest things about crypto is that there are ways you can use it to generate additional cryptocurrency. One such way is through participating in airdrops and claiming fork coins.

What’s an airdrop?

Since 2012, the number of cryptocurrencies in existence has multiplied and there are now thousands of digital currencies on the market. These include tokens – a type of cryptocurrency that can be created and issued by anyone using a particular blockchain. 

Ethereum, for example, is the second largest cryptocurrency after Bitcoin. Like Bitcoin, it runs on a blockchain network, but instead of BTC, its native cryptocurrency is called Ether (ETH). Unlike Bitcoin, the Ethereum blockchain can support other cryptocurrencies that are known as tokens.

Many cryptocurrency projects release their own token on Ethereum and make it available to cryptocurrency users, who can buy it using ETH. Such projects face the age-old chicken and egg dilemma: they need to capture attention, but there is no incentive for users to do so until a community has formed and its token is widely distributed.

To solve this problem, some projects give away a portion of their tokens for free in what’s called an ‘airdrop.’ This involves sending a small amount of cryptocurrency to the wallets of existing cryptocurrency users. 

To qualify for an airdrop, you might need to hold an existing cryptocurrency in your wallet (e.g. ETH), or to have completed certain tasks such as following the project’s social media channels and registering on their website.

Airdrops can be a great way to receive crypto for free, while learning more about how the cryptocurrency economy works. 

$700,000

Did you know? In 2020, an Ethereum token called MEME was airdropped to the community, each of whom received 355 tokens for free. Today, those 355 tokens are worth around $60,000 – and at their peak were worth over $700,000!

Some cryptocurrency exchanges award airdropped tokens to their users. For instance, in December 2020, Coinbase supported an airdrop for Spark tokens, a new token that was airdropped to XRP holders. Popular crypto Telegram channels and Twitter accounts also publicize forthcoming airdrops.

Defi users have hugely benefited as protocols look to gain users with the promise of token rewards, as happened with Uniswap and 1Inch, to name but two.

Blockchain.com provides a good example of how loyalty and patience can be rewarded with Airdrops. They are one of the most respected names in the crypto space - both an exchange and popular wallet provider - giving reassurance that schemes they promote are legitimate. 

To date they have supported two Airdrops Stellar (XLM) Airdrop - which they distributed $125,000,000 worth of XLM - and more recently Blockstack. 

In order to qualify for Airdrops, Blockchain.com requires you to complete Gold Level verification in part as an anti-Spam measure. This does mean providing KYC - remember there is no such thing as a free lunch - but once verified you are eligible for Airdrops. 

With the Blockstack campaign, there was a one year lock-up restriction, but in that time the value of the STX token has increased roughly three times, so the $10 freebie has turned into a $30. Not a bad return on your patience. 

Airdrops may sound like money for nothing, but as we keep underlining, there is no such thing. 

There is no guarantee that an Airdropped token will be worth anything, and you may have to participate in multiple airdrops until you strike gold and find one that is worthwhile. 

Also, because it takes time to grow a community, you may need to be patient to discover whether the airdropped tokens you receive will gain any value.

If you are eligible for an airdrop, the tokens may be sent to your personal crypto wallet, or credited to your account  (if you are using a centralized exchange) but in some cases the process of claiming can be arduous. 

Scammers are constantly monitoring Airdrops and trying to trick users into sharing private keys. They will create fake websites that will promise to airdrop you free tokens, but ask you to enter the private key to your wallet. Do not do this. 

No one but you should ever see your private key, and any site or crypto user who requests it is attempting to scam you. You wouldn’t give a stranger your bank card and PIN. It’s the same with your private key, which is the password to your wallet.

Follow cryptocurrency exchanges and projects on social media to learn of legitimate airdrops, and the criteria for entry.

If you are eligible, either because you own existing cryptocurrency or have completed the micro-tasks required (e.g. joining the project’s Telegram group), you will automatically receive tokens for free. 

If these become tradable, you can sell them for other cryptocurrency like ETH, or hodl in the hope that the tokens increase in value.

Advantages of airdrops:

  • Anyone with a compatible cryptocurrency wallet can participate.
  • If you hold cryptocurrency on an exchange, you may also be eligible for certain airdrops.
  • Airdrops occur regularly, providing a steady supply of free tokens.

Disadvantages of airdrops:

  • There is no guarantee of profit as the new tokens may be worthless or illiquid, meaning they cannot easily be sold.
  • Identifying and participating in airdrops can be time-consuming.

Airdrops are just one way to earn within the crypto economy leveraging the risk you have taken-on in purchasing other coins. They’re a great way to learn more about how cryptocurrency works, and to become involved with communities at an early stage. 

As you do so, you may find that you form online friendships with individuals who share the same interests and motivations, while gaining the satisfaction of being part of a community that is aligned to achieve mutual goals for the common good.

Even if airdropped tokens don’t make you rich, they’ll provide a stepping stone to more advanced earning opportunities as you increase your knowledge and grow in confidence.

How forked coins can be claimed as dividends

Another potential benefit of cryptocurrency ownership is the fork. Traditional companies use dividends to distribute a share of profits to its shareholders. Cryptocurrencies have no corporation controlling them, and instead of shareholders there are simply people who own the currency and support the underlying blockchain.

But even though cryptocurrency networks do not operate as publicly listed companies, you can still claim a form of dividends from something called a fork.

Cryptocurrency like Bitcoin runs on a blockchain (read a full blockchain explainer here). Blockchains are open source so nothing stops someone from making a copy and applying what they see as improvement to the rules. 

This is known as ‘fork’ , creating a second network that shares the same history as the original. This can occur when a group of developers responsible for maintaining the cryptocurrency decide to launch a different version, often due to ideological differences. 

For example, in 2017, Bitcoin forked to create a second chain called Bitcoin Cash (BCH). Holders of BTC were able to claim BCH on a 1:1 basis, giving them free coins that they could hodl or sell for more BTC if they wished. 

Bitcoin Cash has since undergone several forks of its own, and each time, BCH holders received the newly generated coins on a 1:1 ratio.

Did you know? Bitcoin has been forked more times than any other cryptocurrency, giving birth to new networks such as Bitcoin Cash, Bitcoin Gold, and Bitcoin PoS.

Blockchain forks provide a way to claim free cryptocurrency, but a note of caution should be added: there is no guarantee that the newly forked cryptocurrency will be worth anything. 

A fork is like a different interpretation of a common idea. A good analogy is the battle between Thomas Edison and George Westinghouse over which had the best system for delivering electricity. Or the so-called browser wars charting the development of web browsers..

Before you get excited about huge dividends, a  fork will only have value if it provides a meaningful improvement (requiring dedicated developers) and a community of its own hodlers and supporters, and this takes time. If not, this would invalidate the inherent scarcity that is such a key feature of cryptocurrency.

Early forks represented good ‘dividends’ as consensus hadn’t been reached on important challenges within crypto (see the Crypto trilemma) but have decreased over time.

Moreover, claiming forked coins can sometimes require technical knowledge that is beyond most beginners.

There are even scam websites that claim to award forked coins, but force users to input their private key (i.e. their wallet password) before stealing their existing coins. If you are a beginner, the simplest and safest option is to hold coins on a cryptocurrency exchange that intends to support the fork, doing all the work for you..

Note that you will only be eligible for future cryptocurrency forks. For example, if you bought BTC today, you would not be entitled to claim any historical forks, only those going forward. Again, think of it as a stock dividend, a perk ownership entitles you to, 

Summarising the benefits of Passive Ownership::

  • Enjoying the benefits of long term crypto appreciation & avoid the stresses of short term fluctuation
  • Join an army of hodlers & feel part of common cause
  • Use Cost Averaging rather than trying to game the market
  • Enjoy the perks of forks - the chance  of free cryptocurrency on 1:1 ratio with your existing holdings.

Summarising the risks of Passive Ownership:

  • You need to risk an initial investment; past performance doesn’t guarantee future success
  • No guarantee that forks  will be valuable.
  • You may need some technical knowledge to claim coins & there are some sites that will try and scam you.

In this article, we’ve considered why cryptocurrency can be volatile, how cost averaging can counteract this volatility, and what it means to hodl. We’ve also examined how forked coins can be claimed as dividends – but that the time and energy spent claiming a new cryptocurrency might be wasted if the project goes nowhere.

Next step: ICOs & Early Stage Investment

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