The Tax Impact of Crypto Hard Forks and Air Drops

Introduction to Cryptocurrency Hard Forks and Airdrops

1. Understanding Hard Forks:

A hard fork in cryptocurrency is a major update or change to the blockchain protocol that results in a split, creating two separate chains. This often happens when there is a disagreement among the community or developers about the direction of the project. As a result, the blockchain diverges into two paths: one that follows the old protocol and one that follows the new protocol. This split results in the creation of new cryptocurrency tokens.

Example of a Hard Fork: A famous example is the Bitcoin hard fork that occurred in 2017, leading to the creation of Bitcoin Cash (BCH). Bitcoin holders received an equivalent amount of Bitcoin Cash at the time of the fork.

2. Understanding Airdrops: