Last Updated on 1 min by cryptoevent

Cryptocurrency airdrops are not new to the industry, but they are being seen more and more frequently as the NFT space evolves.

In short, a Cryptocurrency airdrop occurs when a network distributes its native token for free. TThey provide a method for blockchain networks to quickly develop their communities, as well as for cryptocurrency investors to get their hands on new tokens either at a cheap cost or completely free.

To participate in an airdrop, users and investors may need to purchase an existing coin and transfer it to an exchange or wallet. Certain Airdrops may only be available to people who have signed up and linked their wallets. A cryptocurrency airdrop is essentially a way for a new coin to generate two things:

1. A market that offers liquidity to a new token and its native platform, and
2. An ecosystem of holders who can use the token to interact with the platform.

A brief overview of crypto airdrops

In 2014, the first cryptocurrency airdrop in history took place. Auroracoin was created as a national cryptocurrency accessible in Iceland. Using the thorough national records of Iceland, Auroracoin issued its native cryptocurrency $AUR to the entire Icelandic population, allocating half of the total coin supply to Icelanders. Residents only had to register and would earn AUR 31.8. Auroracoin was the first cryptocurrency airdrop but fell short of its lofty goal of becoming the first national cryptocurrency.

Since Auroracoin, the industry has seen some significant airdrops. The Stellar Development Foundation (SDF) was formed with the intention of distributing 19% of its original total offering to lumens (XLM) or 19 billion XLM, up Bitcoin Holder. It started this process in 2016. First, the system was tested by distributing three billion XLM to BTC holders across multiple participating exchanges. The remaining 16 billion XLM was distributed in 2017 according to the amount of BTC customers owned across different participating exchanges.

The free issuance of such massive amounts attracted significant media attention, including from prominent news outlets outside the United States bitcoin set up. Many news sites cited the airdrops as some of the biggest consumer giveaways ever offered.

Regulation around airdrops

In many parts of the world, cryptocurrency airdrop laws are ambiguous. Some countries, notably China, have outright banned them. Certain governments also have restrictions on certain airdrops. For example, the Morpher airdrop excluded citizens of the following countries:

Afghanistan, American Samoa, Bahamas, Botswana, Iran, Iraq, Libya, Nigeria, Pakistan, Panama, Puerto Rico, Samoa, Saudi Arabia, Sri Lanka, Syria and Yemen, Tunisia, US Virgin Islands and Yemen.

Nations can ban airdrops for a variety of reasons, but the primary reason citizens in the United States cannot participate is securities regulations. Airdropped tokens or tokens distributed as part of a bulk sale are likely to be considered unregistered securities by the Securities and Exchange Commission (SEC). As a result, anyone who organizes an airdrop faces legal consequences.

When it comes to the legal process of an airdrop, Participants should also keep in mind that many countries tax airdrop benefits as ordinary income.

How can I qualify for an airdrop?

There are multiple methods to qualify for a crypto airdrop. The most popular is to hold a certain amount of another coin in an approved wallet.

For example, OMG Network OMG token holders were eligible to participate in the Boba Network airdrop for BOBA in November 2021. If you are using OMG on a participating exchange (such as binance, Krypto.comHuobi and many others), or if you moved OMG to a Boba Network address, you would earn BOBA at a 1:1 ratio.

Parties in this situation had to leave OMG in those places during a “snapshot” of the Ethereum blockchain (on which OMG and BOBA operate). They would earn an identical amount of BOBA a week later if they held OMG on qualifying spots at that time.

Most other cryptocurrency airdrops follow a similar pattern, with the main theme typically being the requirement to hold a specific token in a specific place at a specific time.

However, some airdrops may be slightly different. In 2021, for example, the airdrop for Morpher (MPH) simply required creating a wallet and conducting a know-your-customer (KYC) check, with no other cryptocurrency required. Other airdrops require you to post to various social networks through a platform, and others coordinated by a specific exchange may require you to trade a certain amount of a specific token before the final time limit.

There are several places interested investors could look for upcoming airdrops. These include airdrops.io, icomarks.com, airdropalert.com, and CoinMarketCap, all of which provide lists of upcoming airdrops as well as information on how to participate.

Is it possible that I’ve earned airdrops that I haven’t claimed?

Given that a large number of airdrops only allow you to participate by holding a specific token with an approved exchange at the time of a snapshot, there is a high possibility that you have won airdrops that you have not yet claimed.

Check your exchange account to see if you’ve earned airdrops. For example, if you heard that there was an airdrop for BOBA, go to your exchange account, check the deposit page, and then check if BOBA was deposited into an exchange-generated BOBA address for you.

If you hear that an airdrop was available to anyone who had a specific third-party wallet, check that wallet out. And regardless of the specific circumstances, if you know you’ve met them, try to contact the people involved in the airdrop (be it an exchange or a platform).

Is it common to tax crypto airdrops?

Crypto airdrops are typically taxed in many countries that have started updating their tax rules or regulations to accommodate cryptocurrencies.

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

Other countries handle discarded tokens differently. For example, airdrop tokens are typically subject to capital gains tax in Canada and the UK, with the taxable value calculated at the time of disposal. So if you receive a £100 token at the time of receipt but subsequently sell it for £1000, your taxable profit will add £900 to your taxable profit.

What is a Cryptocurrency Airdrop? Everything you need to know appeared first on Coin Insider.