Blockchain Innovation in Tax [Radical Changes are Coming]

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Innovation grips the financial services industry tighter every day, and the demand for technical skills in the financial sector rises every day. The tax industry, however—an industry as old as modern finance itself—has by and large skirted these trends. The problem lies within the nature of, demand for, and age of tax services.

First, the average consumer has only two tax-related needs: claiming their tax return, and maximizing the amount they receive. Second, from a legal standpoint, maximizing tax returns, as well as reducing business taxation—two perennially, highly sought-after tax services—are highly complex transactions relative to either the financial expertise of the average citizen, or the ability of any business to pay for such advanced services. Third, these services, with little iteration since the dawn of modern economics, have existed for over 200 years and changed little.


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The modern tax industry, therefore, because of the ubiquitous and ongoing demand for its services, is immensely profitable. Its service workflows are highly repetitive and predictable, and tax firms on the whole are extremely conservative. This gives great incentive to restrict innovation in the industry, since the nature of basic tax needs like income tax returns and corporate tax regulation are usually fixed within a certain context or suite of services that can be applied across industries.

This is not to say that the tax industry has not already seen some innovation. To be sure, companies like TurboTax, H&R Block, Tax Slayer, and Tax Act have released very popular mobile apps that integrate low-cost tax calculation, preparation, and filing capabilities all into their respective all-in-one, customer-friendly APIs.


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Yet such tech still fails to sufficiently advance the tax industry into greater safety and transparency. Further, such apps at best only represent a digitized and mobilized repackaging of the same services tax firms have been selling for decades. Apps like these only redden the ocean of comprehensive tax services, as opposed to the blockchain-based tax services of the future, which are true blue oceans that create ecosystems of collaboration, not competition, that build value for all users and providers.

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That said, change is coming to the tax industry, whether its proponents like it or not, because of the increasing weight of blockchain as a creeping trend in financial services. More to the point, tax matters continue to prove difficult for businesses and individuals alike. This is because the tax industry on the whole is opaque, severely intermediated, insecure, and batch-oriented, ensuring that both the demand for tax services and the resulting high cost of tax services remain consistent, to everyone’s detriment (not only consumers, but tax professionals as well).


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If Bitcoin (and therefore blockchain) was created in 2008, why has it taken 9 years for the technology and the large swaths of consumers and businesses it could benefit to even start being taken seriously by tax industry stakeholders? The answer lies in the fundamental philosophy behind its development. Satoshi Nakamoto in 2008 developed the technology more to start a movement than as a commercial venture. While valuable, the initially underground ethos of the technology saw it first emerging on the dark web, available to only highly specialized, selected cryptographers through private keys.

It’s more popular now and thus accessible on the mainstream internet, but for financial institutions on the whole to even consider using the technology, they needed to find ways to use it in the systems and business models they’ve already created. Since the very nature of blockchain makes it a disintermediative technology, potentially removing middlemen from every industry on the planet, tax professionals—being some of the most valuable middlemen in perhaps the most opaque and conservative financial service on the planet—have had an especially difficult time adapting the technology to benefit their industry. Blockchain consultancy is a must for businesses looking to disrupt an industry like this.


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Blockchain is well-equipped to not only radically change, but also add new value to the tax industry. The cryptocurrencies it underlies are not currently regulated or taxed as assets or commodities, and so as newer, friendlier cryptocurrencies—not specifically Bitcoin, but newer ones such as Ethereum, Litecoin, Dash, and Monero—develop and become more and more popular, the taxation of cryptocurrencies will gain ground as they increasingly work with regulated structures to become accepted forms of transaction, allowing governments to capture value from these new forms of currency.

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Outside of these, core issues that tax professionals deal with daily will be changed as well. The peer-to-peer capabilities of blockchain will digitize nexus characterizations for identity and location, allowing for instantaneous taxpayer recognition and verification of returns and other tax benefits. In addition, the real-time functionality of blockchain will be instrumental in enabling real-time compliance, allowing not only smart contracts for self-enforceability, but also smart money transactions, using smart contracts to automatically carve out tax impacts and remit on the blockchain to the government in real time.


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And let’s not forget that the most basic tax function—levying—stands to be changed by this technology as well, as the real-time capabilities of blockchain’s business accounting use cases mean that authorities could in theory levy indirect, transactional, and withholding taxes, not to mention private equity accounting in burst rates of over 10,000 transactions per second.

As the saying goes, in this world nothing can be said to be certain, except death and taxes. But blockchain innovation promises broad-sweeping changes that will likely revolutionize how the industry operates for decades to come.

This is part of an ongoing series on Silicon NYC about blockchain innovation. You can read my latest installment here, where I analyzed how blockchain can make election voting more secure.

H. Caleb Simmons

Staff Writer

H. Caleb Simmons is a writer, startup community organizer, and blockchain enthusiast. With a background in politics and government, Caleb is highly interested in impact investing and hopes to make a positive impact on the world. (All writing is my own; does not reflect the preferences of my employer)