Crypto airdrop definition

You also need to declare this income in your tax return as other income. When you dispose of crypto assets you earn through staking, you will need to work out if you make a capital gain or loss. Airdrops and income tax treatment Airdrops are a marketing tool that distribute crypto assets through a group of people to build their use and popularity.

Some projects 'airdrop' new tokens to existing token holders as a way of increasing the supply of tokens. The money value of an established token you receive by airdrop is ordinary income at the time you receive it. You need to declare this in your tax return as other income.

Example: airdrop tokens and market value Merindah has held Coin A tokens since December , entitling her to receive monthly BTT airdrops from February The money value of the Coin B tokens that Merindah receives for holding her Coin A tokens is ordinary assessable income. The cost base of Coin A tokens that Merindah receives by airdrop is their market value at the time she receives them.

End of example Initial allocation airdrops A crypto project may make an initial airdrop of tokens that is the very first distribution of its tokens. These tokens are the initial allocation, if there has been no trading in the project's tokens prior to the airdrop. If you receive tokens distributed in an initial airdrop you do not derive ordinary income or make a capital gain at the time you receive them.

These tokens don't have a market value at the time of the initial airdrop because they have not previously been traded. Where these tokens are not free, that is you have made a payment in return for receiving the token, the cost base of the tokens will be amount that you pay to acquire them.

A CGT event happens when you dispose of the tokens. If you hold your tokens for 12 months or more, you may be entitled to the CGT discount. Example: capital gain and CGT discount on initial airdrop token Cswap launched its own native protocol token, CX through a community airdrop. Josh is an eligible account holder of the Cswap protocol and received an initial allocation of CX tokens on 16 September Josh does not derive ordinary income or make a capital gain as a result of the receipt of the CX.

By Sarthak Dogra : By now, most of us are aware of the many cryptocurrencies around us. While the debate upon their use continues, more and more people are getting involved in the crypto world. With this, come more players in the industry and their need to gain traction for their blockchain-based service. A cryptocurrency airdrop has become a very important tool for the same. So, what is an airdrop? In essence, an airdrop is just what you have seen in the many games you play online, a promotional giveaway to players to keep them engaged.

Crypto airdrops do this by giving away free crypto coins or tokens related to the service. In return, they usually ask the participants to promote their service on various social media platforms. There have been numerous airdrops to date, with several of them still lined up for the coming weeks. Most cryptocurrency investors have had an encounter with one or the other platform's airdrop in the past.

In case you have too, but are not quite sure what it means, here is your guide to understanding what crypto airdrops are and how they work. What are crypto airdrops? To understand it clearly through an example, imagine if a new cryptocurrency exchange like Binance or WazirX is going to open up soon. In order to gain maximum eyeballs within the cryptocurrency world, the platform launches its own virtual currency, like WazirX has WazirX Token or Binance has Binance Coin.

The platform then makes an announcement through its various online channels that it will give away X amount of that currency for free to some early users. In return, it might ask the users to register with the platform, or share its updates on their social media accounts, or perform other such tasks in order to enrol. Those who complete these tasks then become the participants of the airdrop. Once the date of the airdrop arrives, the platform transfers the promised amount of its own virtual currency to some lucky winners.

Note that each platform may have different requirements for participation and that even completing all the listed tasks will not guarantee you an airdrop in most cases. This is simply because the number of participants is too huge, with people actively participating in such deals. How do you receive an airdrop? Since the airdrop involves a transfer of cryptocurrencies, it needs the participants to have a cryptocurrency wallet.

These are the same wallets where you store Bitcoin, Ethereum or any other cryptocurrency that you may possess already. Platforms usually ask for this wallet address at the time of registration for the airdrop. So once the due date for the airdrop arrives, the company will transfer the promised amount to your wallet address, that is, if you are among the winners of the lot.

Note that different platforms may require you to have a wallet based on the blockchain that they employ for their service.

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