American securities brokerages have long been required to report customer transactions to tax authorities. Extending that framework to digital assets has proven mechanically difficult for reasons specific to how blockchains work.
What information reporting is for
Reporting rules require intermediaries to send transaction details to both the customer and the tax authority. The purpose is to give both parties the same record.
For traditional securities this is straightforward, because a broker holds the account, sees every purchase and sale, and knows what the customer paid. The data exists in one place.
The obligation sits with the intermediary rather than the individual. The system is designed so that compliance does not depend on customer recordkeeping.
Defining a broker is the hard part
A centralized exchange holding customer assets fits the traditional model closely. It maintains accounts, knows identities and records every trade on its own systems.
Other participants in the ecosystem do not. Wallet software, protocol developers, validators and miners facilitate transactions without holding customer relationships or knowing who is involved.
Determining which of these should carry reporting duties has generated years of debate. A definition drawn too broadly captures parties who structurally cannot collect the required information.
Cost basis breaks when assets move
Reporting a disposal requires knowing what the asset originally cost. A brokerage knows this because the asset was bought and held on its platform.
Crypto assets routinely move between exchanges, self-custody wallets and protocols. An exchange receiving a deposit generally has no reliable way to learn its acquisition price.
Traditional markets solved this with standardized transfer messaging between brokers. No equivalent exists across an open network where the receiving party may be software rather than a firm.
On-chain activity multiplies events
An active user of decentralized protocols can generate an enormous number of individual transactions across swaps, deposits, rewards and transfers within a single year.
Each of those may or may not constitute a reportable event depending on its nature, and classification frequently requires interpreting what a smart contract interaction actually did.
Reconstructing that history is the reason a specialist software category exists. The complexity is a consequence of the technology, not of anyone's choices.
Implementation has moved slowly and unevenly
Rules in this area have been proposed, revised and phased in over extended periods, with different requirements applying at different times to different categories of intermediary.
Because the details change and vary by circumstance, anyone with meaningful activity should work from current official guidance and a qualified professional rather than general description.
The direction of travel is clearer than the detail. Intermediaries that hold customer assets are being pulled toward the reporting standards that govern the rest of American finance.