Airdrop is distribution of crypto currency for free. The airdrops are often associated with DeFi protocol. De Fi is Decentralized Finance. As airdrops are free of cost, people are raising questions about its tax liability. Do they amount to capital gains or income? And so the question of legality of airdrop is increasing lately. In this article, I explain about the legality of airdrop.
Is airdrop legal?
Yes. Just because, it is given for free it doesn’t mean airdrop is illegal. It is a marketing strategy. The main objective of airdrop is to increase circulation of the crypto currency and to promote its awareness.
To understand more about the legality of airdrop, you should understand what is air drop? How does it work? And more
What is airdrop?
Airdrop is sending coins or tokens. Usually the new crypto companies use this strategy to promote its freshly launched currency. During airdrop, the companies send small amounts of its newly launched crypto currency to the user wallets. This is similar to the rewards offered to a new user signing into an e-commerce. Therefore, it is completely legal. The airdrop is done either for free or in exchange of a promotional service.
How does airdrop work?
The airdrop is mostly used by block chain based startups. They use this to kick start their currency project. Say a company X is starting a venture based on a crypto called FFFF. X is a startup. Therefore, people have no idea about X or FFFF. Now X has to gain trust of the people. They have to prove that they are reliable. So they offer some of their crypto currency for free. Ask people to try it for free. This will give hands on experience on the currency. When people use this free currency, they will get a chance to learn about the currency. The users who liked the currency will want to use more of it. This way the popularity of the currency increases. So, basically airdrop is a promotional strategy and is completely legal to use.
The airdrop is safe as it is associated with decentralized finance.
What is Decentralized finance that is associated with airdrop?
In centralized finance, the transactions and storage are held by third parties and banks. On the other hand, in decentralized finance there are no intermediaries. It uses block chain. The decentralized finance aids in peer-to-peer financial transactions.
How is airdrop promoted?
Airdrop is promoted using social media or company website or crypto currency forums. Here the crypto currencies are sent only to specific wallets.
Name reason
The crypto currency airdrops are named in reference to the aircraft airdrops. During aircraft airdrops, the military drops weapons, aid or equipment without the landing of the personnel. Similarly, the crypto company drops its currency in to the wallet of the users without contacting them in person or without mailing or texting them. The airdrop is increases the competitive spirit of the crypto companies.
With this, I conclude that airdrop is completely legal. Hope my article was informative and helpful!