From Niche to Necessity: Tax & Accounting for Web3 and Digital Assets

Hello and welcome to another episode of Niche to Necessity. Today we have

Chandan Lodha who is a co founder over at Cointracker.

We're really excited to have him on the call today because there's some new features

that they're rolling out and also lots of stuff coming into year

end related to Rev procedure

2024-28, things like that that are requiring

changes for how you report your basis and track from

an inventory methodology. So there's a lot of cool stuff I think we can unpack

here with Shannon. So thank you so much for joining us and welcome to the

show. Thank you so much Taylor. I'm excited to be here.

So could you just start by sharing a little bit about your background and what

led you to co found Cointracker? Yeah, sure,

absolutely. So my background is mostly in the technology

space. Before Cointracker I was a product manager

at Google for a couple of years and I worked on a couple of different

things there. Google search, Android actually also a project at Google

X about providing Internet access to

rural areas of developing countries. Internet access

be like a stratospheric balloon network. So we were

talking earlier about Spanish. Like I spent a lot of time in Peru for example,

kind of setting up, you know, cell service in the Amazon and stuff like that.

But anyways I ended up getting more interested in

fintech and I worked on actually one of the first

integrations between Coinbase and Google in 2014.

And so it was just like a small feature but because of that

I ended up getting a Coinbase account and getting some bitcoin and stuff like that.

So that was kind of my first foray into crypto.

And then a few years later me and my co founder John, who

was also a fellow Googler of mine, basically decided to take a

leap out of Google and to work on a personal pain point

that we ourselves had which was how the heck are we going to

keep track of all of our crypto transactions? Which is something that, you know, I

see you smiling. I think any, any self respecting crypto person has gone

through the hassle of creating a spreadsheet and trying to keep track of all their

activity and it's just a mess. So in 2017 we took the leap

and we started building Cointracker to initially just solve that problem for

ourselves. Very cool. Yeah, I mean I laugh because you know, up

until 2021, reporting year I was in Excel

and you know it's, it's, it's, it can be

brutal, you know, especially the, I feel like the problem gets worse

the longer that you're doing it that way. And so I ripped the band aid

off the last couple of years and I've finally, you know, gotten my stuff into.

Into the software and it's like, it feels. It feels good. It feels like a

way it's lifted, but I feel like there's still aspects of that that help me

really understand deeply, you know, on chain data and things like

that. So while I wouldn't wish that on my worst enemy, I kind of am

glad that I went through the fire a little bit. So, yeah, I definitely can

relate to that. Totally. So, looking

back at Cointracker's early days, how has the platform evolved to meet the

changing needs of crypto users? You say this, you know, you built this out as

a pain point for yourselves. But, you know, how has the industry

shifted and how have those kind of needs of users changed and.

And you guys responding to them? I mean, it's just totally different now,

and it kind of follows the evolving needs of crypto users and

generally the evolving crypto space. So, like, if you rewind back to

2017, seven, eight years ago, it

was just so much more nascent at the time. And crypto still feels nascent, but

at the time, I mean, people were basically buying and selling Bitcoin

on Coinbase. That was kind of like the core use case

and. And, you know, maybe they had added like Litecoin and Ether, but

like, it was really like 1, 2, 3 tokens that you could basically on Coinbase.

And if you wanted anything more exotic than that, you'd have to go to some,

like, altcoin exchanges. But there weren't even that many of them. Binance had barely. I

don't think Binance had even launched until like that later that summer in

2017. So it was just very basic activity and very

early. And so the very first version of Cointracker, you know,

it basically was just built around Coinbase's APIs and

buying and selling, basically Bitcoin. But

then things have really evolved since then. We had

ICOs, we had DeFi Summer, we had NFTs

explode, we had all these layer twos that have come out.

We have bridging and wrapping and all kinds of way more complex

activity now. And so with each of these phases, with each of these bull

runs, with institutional adoption now and custodians, there's just

total revamps of the entire set of user needs and activity

that have happened there. So we've just completely had to rebuild Coin Tracker from

the ground up to support, you know, now over two and a half million

users and way more complex activity. Yeah,

that's really cool. I mean, I remember getting involved, you know, heavily in

Defi and Defi Summer and you know, the Unity airdrop and all that

stuff and things just got so complicated. And that's kind of what

necessitated my shift from the Excel spreadsheet

because I was involved in some launchpads and things like that. And so, you know,

you're getting tons of ERC20 tokens. And then not only that, you're looking at

polygon and bsc and it's like finding

places where you can easily report that

stuff, but also report when you have more complex things that may

not be right in the kind of like siloable, if that's a

word, clearly defined scope of what

we're looking at. It gets really challenging. So that's,

I think it's a necessity to be able to be agile as a

company in this space, especially when you're dealing with data and you're dealing with

highly adoptive industries like this. So

what would you say some of the key milestones that were that helped

shape what the product is that we see today?

So I'll give you a couple of high level ones. I mean, the first was

just initially launching and we went through a startup accelerator here in the Bay

Area called Y Combinator. And that was really helpful because

at the time in 2017, I had precisely zero friends

that had crypto. None of my, or at least none of my close friends had

any crypto. So I wasn't really connected to the

ecosystem or the community. And going through Y

Combinator, I went from having zero close contacts that had crypto to like,

I was founded by a hundred other founders. All of them had crypto

portfolios. And within our batch there were a bunch of other amazing crypto founders

too, including Devin and Alex, who started OpenSea, the NFT

marketplace. And what was really helpful at that time was

we were actually just doing portfolio tracking in the beginning and we had nothing to

do with tax. And you know, these guys were like, hey, you know, like,

if you do my crypto taxes, like I'll pay you money for that. Like, you

already have all my transactions, you're already doing all the portfolio tracking. But what I

really need to do is get my taxes done. And this was 2017 Bull

Run, right? This was one of the major bull runs. Bitcoin crossed 10k. People

were losing their mind. You know, it's crazy, but we didn't know anything about

taxes. And so we were kind of like I don't know. And then the next

crypto founder was like, I'll pay you $500 if you do my crypto

taxes. And I'm like, all right, now I'm listening.

And then Richard, Richard Ma, the CEO of

Quantstamp, who was also in our YC batch, was like, I'll pay you

$1,500 if you make sure I don't get audited by the irs.

And so we're like, all right, we're definitely going to do this now. So we

spent a weekend and basically just launched a mvp, super

simple version of crypto taxes. And it just immediately took off. So that was kind

of the first milestone of getting into YC and launching the

actual crypto tax calculator type service.

And then after that, we had another major

milestone when things blew up in 2021,

because everything went gangbusters again. The market blew up. Things went

5x in terms of price. Our user base grew 14x year over

year. ICOs were going crazy, NFTs were going crazy. DEFI was

going crazy. So there was a major rehaul in just saying, okay, we don't just

need to understand buying and selling crypto activity now, we need to

understand these more complex defi operations. The type that you were describing

that caused you to kind of graduate from a spreadsheet into a tool because now

you're matching cost basis and doing transfer matching and keeping track

of wrapping and unwrapping and staking, it just becomes

totally impossible to do by hand. So that required a major

level up in the way we handled things. And then I would

say again, like in the past year or so, we've had another major

overhaul of the platform again now because we started working on

supporting enterprise clients and building a crypto sub ledger. And

there's, you know, we have our hands in some other initiatives too. I think we

can talk more about that. But it's been a sort of another step function change

in improving the quality, the rigor, the breadth and depth of integrations

that makes coin tracker kind of tickets. Yeah, I think that

it must have been chaos in DeFi summer when Univ2

launched. And then you could just instantly have pretty deep

liquidity for any kind of obscure project or

even create your own project and then instantly fund a pool. And as long as

you spin up a community and you have people that want to trade that asset,

it was just like gangbusters. And so you had the ICO boom of 2017,

but there wasn't the same kind of ease of Access

to all those tokens. And so that must have been a bit

chaotic. Do you have any anecdotal stories from that

time that were interesting? I mean, it was crazy.

It was absolutely bananas. In

retrospect, it's kind of fun to look back wistfully and nostalgically and like, yeah, we

survived, but it was definitely really crazy,

like even before that. So in 2020 when Covid hit, our

revenue decreased 70% in one month. And it

was really tough, like we were six months from going out of business entirely and

having to lay off the entire team. It was really grim

times. We were two years into a tough crypto winter, so they

were like big financial challenges like that. And then in defi summer

like you're talking about, I mean, we went from basically tracking, buying and

selling bitcoin to now there are like 1

million different like liquidity pools you can create and there's multi

in, multi out transactions and there's all these new tokens that don't exist

anywhere, aren't listed anywhere. And you know, it's like, how do we even get pricing

feeds for this? And all of the customers that have been relying on us year

after year are suddenly like, nothing is accurate, nothing's working. Like all the numbers

are totally wrong. We were flooded with hundreds of thousands of

support tickets. I was like trying to manually do it all myself.

All our Reddit channels were flooded with people saying, everything's

broken. This totally sucks. It was really crazy.

Again, we dug ourselves out of that hole eventually. And that came

by really focusing on really understanding the user problems,

really rebuilding the solution to actually solve them. Getting humbled

really deeply that just because we built something good for 2017

doesn't mean it's going to be good in 2021. But yeah,

it was just a lot of hard work and having to really

rebuild things from the ground up to support the evol needs of people in the

crypto space. Yeah, I mean it must be, I mean, part of the

reason why we're here. You know, it's double edged sword, right? The industries move so

fast that it makes it interesting for people like me who, you know, I became

a CPA more to kind of like be able to insert myself

in any type of industry that I found interesting. Not because I

loved debits and credits and things like that. So for me,

you know, I always, my, my plan was always like, okay, I'll learn the

accounting side of things so I can really have a great understanding of businesses in

general. And like, what, what a healthy business looks like from the financial

statements and then be able to leverage that in whatever kind of industry I want

to go into. So I started at companies like, you know, Burton Snowboards and place

like that, but then really quickly found that I wanted that

to be in kind of pioneering industries. So cannabis and then crypto

were the two industries that, that really filled that kind of

knowledge void for me where I wanted to be. But it's a double edged sword.

Cause then you have the pace of innovation so fast that you have to

constantly be on top of the news and you have to be involved in communities

so that you can hear what's coming down the pipeline and also get other people's

take. Because to be able to say that you know everything about this

industry, I always say you're either, you know, ignorant or you're

lying. Yeah, totally. And so I think that it's really

important to have that passion, but it can be exhausting

at times, to your point, especially in periods of

highly innovative times. So, yeah,

interesting stuff. One thing I've

noticed is that a lot of different crypto tax

platforms have kind of like a unique

user base or a specific type of client that they kind of

target. Because obviously there's a bunch of different

platforms that do this. What would you say is like

your special sauce or the thing that sets Cointrekker

apart that, you know, attracts a specific type of user

base? Yeah, that's a good question.

So, yeah, I mean there's, there's a handful of different products now that do things

in the crypto tax space. So let me just briefly talk

about Cointrecker's user base. So we have quite a wide breadth of users and with

two and a half million users, like you just have to have a wide breadth.

So there's some people who are brand new to the crypto space, have made five

bitcoin transactions and are like totally new and are just

barely coming out of no coiner dump. And then there's

some really advanced algorithmic hedge fund traders and enterprise customers and stuff like that that

are doing some super advanced stuff. So we definitely do see the full gambit. But

if I had to pick kind of like where I think Cointracker most

shines and is most uniquely great, I would say it is

at the, at the cases where people are doing more

complicated, advanced things. And that's because the

barrier to entry to doing kind of like the basic crypto

tax stuff is actually not that high. So like if you're a user and you

just come in, you just use one exchange, like Robinhood or

Coinbase, and you're just mostly buying and holding.

The tax calculations are actually not that hard. And so you can

kind of do that. You can do that yourself or you can use a kind

of budget solution. And it's pretty basic. Then, you know, again,

there's no, like, really complicated engineering or anything that goes into that. And so while

I think Cointegration Tracker serves that user segment really well, there are plenty of other

solutions that I think can also do that just totally fine. And they might be

cheaper to use than cointracker. I think where Cointracker shines

is on these more advanced use cases. So, for example, we spent seven

years investing in automatically parsing 50,000 smart

contracts, and we've handled all of these really complicated

cases. Like, we've partnered, we've become the official crypto tax partner for Coinbase and

Solana foundation and Metamask and Uniswap and OpenSea and

Phantom Wallet and TurboTax and HR Block. And so, like, we've just seen all of

these really complicated cases. And that can be complicated on

the dimension of defi. It can be complicated on the dimension of scale hundreds of

thousands or millions of transactions. It can be complicated in the sense

that people are using 100 or 1,000 different wallets, and

there's lots of transfer matching issues. So complexity

comes in lots of different shapes and forms. But those are the cases I'm kind

of like the most proud of because it's really hard to do that at scale

reliably and accurately. And those are the things I really take a lot of pride

in with Cointracker, is that it's very reliable and accurate,

especially in these more complicated scenarios where we've seen a lot of

customers, like, have problems in other places.

Very interesting. Yeah, I think, you know, this stuff can

be incredibly complex, you know, especially, you know, managing taxes. And people

have a lot of pause going into crypto taxes because it can feel

daunting. And also it can feel like it's really expensive

to go out and hire a crypto tech professional because we're in

short supply. And depending on how complex your data

is, it can take real. You know, I've spent 80

hours on certain clients that just really have a deep

transaction book that is tens of thousands. And it's not just spam

transactions. It's very complex. Maybe they're really algorithmic trading or things like

that or bridging. But how would you say you

guys handle that complexity and simplify the

tax reporting and reconciliation process for your users? So it's

exactly that, right? Like it's. You basically talk to a lot of people who are

in these scenarios and you see a lot of cases and then you just

obsess over those cases. There's no

way that like a human being is going to go through 100,000 transactions and

manually tag them or manually figure out the cost basis for them. It's

just completely infeasible. And so the kind of nice thing

about having these really complex cases is it really forces us to

think about deep scalable solutions that we can then

apply to the entire user base of millions of users. So for

example, you know, in the very early days we might have done something naive like

people kind of come in and they have to tag things one at a time

or match things up one at a time, or review things one at a time

or whatever. But when you are trying to deal with someone or a set of

customers that have hundreds and thousands of transactions, you basically have to say like, okay,

well that we could just throw that out of the room. That's just never going

to work. We're going to have to build a classification system that

auto classifies 99.9% of transactions. We're going to have to figure

out what every single one of these smart contracts does and put in all of

the engineering piping behind the scenes that's complex so

that the front end user experience is ultra simple and people

aren't having to spend time and effort doing those kinds of things. So a lot

of what we do at Cointracker is obsessing over these user accounts, especially

these more complicated ones, or these ultra users, or these whale

users, to make sure that we are putting in the piping,

the integrations, the cost basis, the defi classification systems behind

the scenes so that the front end user experiences, hey,

almost everything is auto classified, auto tagged, auto transfer match,

auto detected, auto calculated. The reports are easily compiled so

that even if you're totally not finance savvy, accounting

savvy, you can still understand what's going on. And then

only the few cases where it's really, really an edge case

and it's totally unclear what's happening or some human input is really actually

required, you could say, hey, look, spend 10 minutes

reviewing these five transactions and just classify what was going on

there because we're not able to auto detect that from on chain activity.

And, and the impact is that Instead of spending 80

hours, you know, trying to figure out your taxes at the end of the year,

like what the hell was I doing on, you know, binance smart chain

on April 20th, 2023 you can just

say here are the five things I need to do. Okay, there's checks and balances,

everything looks good. If I want I can have my CPA come in and

verify things. But it's now a, you know, it's a 10 minute

process instead of this really anxiety inducing system.

Yeah, I mean there's only a certain amount that the software itself can do. Like

ultimately you need to be able to make sure that you have all your wallets

attached, for example. And like, you know, so I'm sure that there's a lot

of challenges that people maybe complain to you guys about. That's really the user's

fault too, you know, because if you put garbage into any system you're going to

get garbage out. So it's, I think that's one of the

biggest challenge, you know those 80 hour clients, it's usually because

they tell me they gave me everything and then I mathematically prove that they

didn't give me everything. And it's like, you know, your

Bitcoin can't go negative dude. So

you know, it's, it's, I think that's, that's a big challenge in this space

as well is you know, I tell

both people on the, you know, the tax prep side and also on the investor

side you have to document everything really well and keep clear

records of where all these wallets are

and the basis in, in these, which is what, you know,

platforms like yours help people track because if you don't,

you're going to get things wrong. And you know, I did out an example for

a course we released recently where you know, just simply

not properly tracking your cost basis could cost you upwards of

65x in taxes. What you normally, you know, it could be infinite, you know,

not infinite but it could be astronomical. What you could pay more in

taxes because if you don't properly document things you're going to have to assume a

zero cost basis. And if you have a zero cost basis versus when

you really should have had only a $500 gain on a sale

of a full Bitcoin, it can get spiral out of control

really quickly. So to be fair to companies like

yours, the user has to do a lot of work on their end to

make sure that they're just keeping track of where all the money goes and the

different wallets they've used and the different chains they've used. Because if you don't have

the complete data set, you're not going to get good answers from Any platform.

Yeah, I think that's everything you said is totally spot on. I completely agree.

And I think this is why it's important that there are crypto savvy accountants like

yourself and communities like crypto CFOs where there are people who know what they're

doing here. Because a lot of accountants aren't familiar with the ins and outs of

this and won't be able to keep up. So as our head of tax strategy

always says, the best thing you can do in crypto is get a crypto savvy

CPA to help you out. One thing I will say

though is that having tried to do my own taxes

in other areas outside of crypto, I also have a lot of

empathy for like how easy it is to forget about this one random

thing you did in one random place a year ago. And so

I think in the early days I was really like, oh man, these users, like,

why can't they just keep track of everything? Like, why is this such a nightmare?

Keep telling them like add all their wallets. But I've kind of come to realize

it's just human nature, like people are just not going to remember everything. And so

we kind of take it on our own shoulders to also try to build the

software in a way where putting it like

taking as much of the load and responsibility off the users as possible, making

them have as much peace of mind as possible. So for example, if we

detect that they're going to have a negative balance in a wallet or that there's

a mathematical reason why there's a wallet missing or an exchange missing,

what can we do to auto detect that and prompt the user like, hey,

don't forget to add this wallet. You had five transfers coming

from the same wallet into, you know, your exchange that's synced here. Is this your

wallet? Do you want to add it? Can we make that easy one click addition

for you, things like that, just to make it one, you know, one less thing

for people to worry about because yeah, it's just, it's so easy to forget.

Yeah, that's great because I mean, I know that's one of the major steps that

a lot of CPA firms will do when they're reviewing their data. Because I know

that like lots of firms that are in the tax,

crypto tax space specifically are adding other tools into their tech

stack as well so that they can more easily assist

themselves in the, in the reconciliation process like you're talking about and make

those suggestions to the client. So it's not like you know, you

can, obviously you don't want to tell someone this is their wallet, but it's

like as easy as you can make it for someone to recognize that it's their

wallet, the better. And you know, that's, that's great. I didn't realize that was

another one of the features that you guys had. So being able to kind of

like, I don't know whether it's machine learning or whatever, but to be able to

come up with a good idea that yes, this

is a high likelihood, this is potentially your wallet, you know, and then if the

user says it's not, it's not, and you move on. Totally.

Yeah. So speaking about the complexity

of all the changes that happen

and the fact that documentation is

so important, we had a major kind of

change in the revenue procedures this year from the

IRS and the Internal Revenue Code, specifically

2024-28, which established a safe harbor for the

switch from universal wallet basis wallet reporting to wallet

by wallet, which is going to be required as of 1:1, 2025.

And we talked a lot about having to adapt to industry changes

and this is obviously a compliance change. How has

Cointracker adapted to this rule change and what are the features that you guys are

rolling out to help users comply with this safe harbor deadline?

Okay, this is a great and very technical question, but I'm

glad we're talking about it. So I'm just going to assume that

maybe not everyone is ultimately totally familiar with this. So basically the

background is that there has never historically been a

tax form for crypto assets. And now, as you

know, there are more savvy people here will know there is going to be a

1099 digital asset form, first time ever in US history, a

crypto specific 1099 tax form where brokerages

are going to be responsible for reporting all the crypto sort of dispositions that

a user's had. So Coinbase and Robinhood, all these platforms are going to be telling

the irs, hey, here are all the transactions that Taylor made that had capital

gains. And as a result, users

are going to need to make sure that their cost basis matches

what these exchanges are reporting to the irs. And there are sort of two

different ways. Historically people were doing that, what I like to call kind of like

universal cost basis tracking. And then per wallet tracking universal

means. Doesn't matter what wallet I have, doesn't matter what exchange I have, if I

have a Bitcoin in my self custody, in my cold wallet, in my coinbase

and my Kraken, it's all One big queue of Bitcoin.

And in per wallet I have a separate queue of cost

basis for my bitcoin and my cold wallet versus my

coinbase versus my Kraken versus my Binance. And so before people were

kind of just willy nilly picking one or the other, maybe not even knowing

that. But now the IRS is saying you have to use per wallet and that

is so that it has to match what the exchanges are each reporting. You can't

just have one universal queue. It's you need to have a queue per

wallet or per exchange. And there's a safe harbor

until January to basically make that transition. So

without any guidance, this is going to be really messy for people. And I think

there's actually a lot of platforms out there that are not even complying with this,

which is going to be a big problem for people. But this is a really

key safe harbor for people and so we really want users to take advantage of

it. So we've written a blog post that lays out all the details. But

the summary of the blog post is that we're creating a guided

experience for every coin shocker user to take advantage of the

safe harbor and migrate from the old way of doing things, the

universal, into the new way of doing things, which is the per wallet.

And there's a couple different ways that people can take advantage of that safe harbor

by using cointracker. One way is to move

all of their assets by token into one wallet. And so if

you, you know, back into my example, if you take all your bitcoin and you

put them all into your cold wallet, then you're automatically

kind of collapsing the universal into per wallet and then you can spread it out

again and that will sort of necessitate that

you're naturally migrated into a per wallet transition. Take advantage

of the safe harbor and you're going to be good to go. For the irs,

that might work for some simple users, but for some more complex users who don't

want to move all those coins around or it's just not feasible, we're offering a

second option which is basically the ability to

allocate your cost basis from

the kind of universal allocation into an automated global allocation

for each wallet. And you can basically say, I want to follow a

system like fifo, first in, first out, last in, first out, highest in,

first out, and apply that universal queue to my specific

wallet. So we have a guided kind of experience in the product

to enable people to do that as well and also generate a snapshot report

that basically kind of creates a point in time record of like,

here's what my sort of queue was before and here's what it is afterwards

so that in the event that you ever have to deal with an IRS

notice or audit or whatever, you can kind of prove, hey, these were the queues

I had. Here were the cost basis for every tax lot I had. Here's the

process I used for switching it over and I'm fully compliant.

So sort of TL. Dr. We're creating a guidance experience to make sure people

can take advantage of the safe harbor the IRS is offering and

have a smooth experience staying compliant with the new revenue

proced. That's really refreshing to hear because it's, you know, it's

challenging to get these answers out of a lot of platforms and

to hear about this and the process that sounds very robust

and like it'll help a lot of users get into compliance really

key because, you know, I think that

especially tax professionals that are looking to not all of them

will have just a one tax software that they'll use for all their clients because

there will be certain situations where they'll have to use other ones. But I think

that it's very important for tax professionals to see that the platform they're

using is proactive about these

new standards that come out and the new requirements from a compliance perspective

because it shows that, hey, in the future, you know, it's Cointrekker

was on it for RevProc 20, 24, 28. We think they're going to be on

it for the, you know, the newer stuff that comes out as well. So that

can bring a lot of peace of mind to folks as well. So that's really

cool to hear and I think it's a big challenge that I think it will

expose a lot of bad tax work that's been done in the past

for a lot of folks. So more work for folks

like me and the people in my community, but

also more opportunity for folks that want to get involved as well.

So that's awesome. Thank you for the explanation. And I think that it

makes the process, I think more palatable for folks because people want to

be in compliance and this is a really great safe harbor option for folks

to be able to take advantage of because I don't know anyone who is doing,

you know, the vast majority of people were on universal basis. And so to be

able to make that change over, I think a lot of folks will start to

have like you're saying either one wallet or wallets that are

built out for different basis usages like you know, a long

term wallet or a short term wallet or things like that. And I think that

it'll ultimately hopefully help a little bit with wallet hygiene as well.

Because simplifying those wallets and consolidating things down and

having more like pragmatic approach of how you allocate your assets to

different wallets, I think it improve, it will hopefully improve security

of folks. Just like, you know, you don't carry your gold

bars in your wallet walking down the street. You carry the cash that you need

to transact, you know, different levels of security for different needs.

So I know it's kind of a stretch, but I think that

hopefully this compliance action

will help improve overall security of folks in the industry.

So I completely agree with that. Yeah, yeah.

So you know, we're talking a bit about the proactive approach that you

guys have taken so far with this new revenue procedure.

And crypto regulations are evolving rapidly. I think we saw,

you know, we saw the broker regs that came out I think in June and

then we got kind of some can kicking on whether or not

decentralized brokers are going to be wrapped into this and you

know, lack of clarity there. And then also with 20, 20,

24, 28, it's not really clear how the IRS is going to really like

prove whether you were in compliance as of 1:1 or not. So to be able

to come up with features like this in an environment where there's,

you're often like seeing things as clear as mud.

Right. You know, more power to you guys. So.

But how do you guys stay up to date with these changes and ensure that

the product consistently aligns with the latest guidance? Do you guys have a

team? What's your, what's your approach to all this? Yeah, we take a

very strategic approach to this and we do have a team that works on this.

I think we've learned our lesson basically having done this for seven years, that when

we don't stay up to date with what's going on, the product totally falls behind.

Right. And we're no longer meeting users needs and it's like what are we even

doing then? Right. If we're not solving users problems, what are we doing here?

So because we've learned that lesson, we've now spent years really deeply

engaged with the regulations on the tax side, with the treasury,

with the IRS, with Congress. I used to go to Washington

D.C. personally every quarter, meet all the folks there, understand what

is kind of coming down the pipe. I'm actually going to Washington D.C. next weekend

for the Blockchain Policy Summit. And yeah, it's just like building

long term trusted relationships with the crypto savvy, digital asset savvy

folks at the Treasury. With the IRS keeping up to date on the new

regulations on RFIs, on RFPs, on everything

that's happening around crypto regulation as that space is

rapidly evolving. So yeah, it's staying close to

the regulatory environment, sharing our input. The irs, for

example, recently had, they were taking sort of soliciting comments and

input on these new regulations that you were talking about that came out in June.

So we are always researching it, submitting comment letters. Our

head of Tax Strategy was speaking to the IRS on the panel around that.

So yeah, it's staying very close to how the regulations are being formed

and making sure that whenever there are new updates that we're

proactively improving the product experience to make sure it stays

compliant and that users have really simple experiences to do

this because the average layperson is not going to understand What

Revenue Procedure 2024, 2028 is. R28 is. They're

just going to be like, help me stay compliant. And that's our job. Yeah,

they don't want to have to learn that stuff. It's part, you know, and even

if you're a, like A die hard DIYer, like you still don't

want to have to read about the Internal Revenue Code. Right? So

yeah. So do you guys have like a policy

for, you know, user education? Because obviously, you know,

lots of users won't want to dive too deep into things, but ultimately at the

same time they are, they have

a burden to be able to have some sort of level of education

on this stuff, to be able to file their own taxes. And I would assume

that a good majority of your users are DIYers. So

you guys have a policy for educating your

users and what does that look like in the context of this?

And what type of services do you guys provide from that standpoint? Yeah,

absolutely. I think you're totally right. And we want people to be informed. It's our

job, I think, to kind of translate the complexity of what some of this stuff

is into a palatable form for general audience. So what we do

is we wrote a blog post about this specific case and if

there's other cases too, we have them all send it to you so you can

link it in the notes and it basically breaks down, hey, what's going

on? What's the revenue procedure? Why are they doing it? How are we handling it?

What do you need to do? What do you need to be aware of. And

so for like the casual user who doesn't care, they can ignore it, they can

just kind of follow the in product flow. For the more savvy user, they can

read up on it, understand what's going on, why is it going on, what options

should they select to optimize the scenario for them? And then ultimately

we're a product company, we're not a services company. We're not offering

CPA services or accounting advice or actually filing, you know,

true tax returns. So for people who want to work with an

actual cpa, you know, we want people to come

find actually crypto, crypto savvy people like yourself and other people in the

crypto CFO community who are familiar with what are these

rules, how do they work, how do they comply? And so we have a whole

like tax professionals experience too to connect people with

those tax pros and work with them when they have more complicated situations

or really want that hands on tax expertise.

That's great. Yeah, I think that, you know, I think a lot of people are

worried about how much it's going to cost because they've either been quoted in the

past and it's been exorbitant or whatever. But I think a lot of the people

that have been involved in the space, you know, even through the bad times, like

if they've been here through the bear market, you know, a lot of them are

starting to realize that you can't just bill based on transaction

volume. It's not going to be accurate and it's not going to be true to

what the workload is. And so I think that

people that are worried about working with a CPA because they think it's going to

be too expensive. It's very expensive to be audited, first of all.

And a lot of times if you're putting

incorrect information in, you might not realize it and you might, you

know, cause yourself to report larger gains

than you're truly required to. So being able to

have access to a CPA if that's what you want to do, if your

situation is complex enough to necessitate that is really important. So, you know,

providing access to that is great. So I wanted to shift

gears a little bit and get into kind of future product

releases and things like you mentioned before, the enterprise

market. I noticed that you guys recently announced that you are expanding

into the enterprise space. I want to say what

prompted this move? I think I know part of that answer. You know, obviously there's

a lot of core competencies that you guys Develop as a, you know, tax

provider in categorizing these transactions that

relates to that enterprise side of things as well. But what prompted

you guys to make this move and why now?

Good questions. I think that. So it's kind of.

So let's just take a step back. Basically, we spent seven years building this

technical foundation. And what that technical foundation does in a

nutshell, is understand crypto activity that people are doing out in the world

on chain and exchanges, ingests it and

then classifies it, transfer matches it, applies cost

basis, figures out the accounting logic and converts it from

the messy, crazy crypto transaction world into

a really neat reconciled ledger of crypto

activity. And then we built a business out of that by

converting it into, you know, IRS Form 8949 and connecting it with

TurboTax and HR Block and CPAs. And that

was kind of our core business. But the kind of key insight here is

that doing crypto accounting and bookkeeping, building a crypto

sub ledger for businesses, the heavy lifting of that, the

key problem with that is the crypto crypto reconciliation.

It is in fact making sense of all that crypto activity. And

we've already built an engine that is world class at doing that. So it's

a very natural extension of the assets we've spent so much time

developing to serve this additional user base. Now, there definitely are

new complexities in an enterprise market. You have to build ERP integrations with

QuickBooks and Xero and Netsuite and Sage. You have to figure out how journal

entries work and translate crypto transactions into journal entries.

You have to create rules engines so that people aren't manually

tagging their general ledger accounts transaction by transaction, and

that it works at scale. If someone has 10,000 or 10 million

transactions, there's definitely a new set of challenges. But the kind of

core secret sauce to what makes a great product in that

space is the crypto reconciliation. And the beautiful sort of

strategic flywheel that we have there is the more we invest in making it better

for enterprise, the more it's better for the millions of consumers.

And the more it gets better for the consumers, the more it gets better for

enterprise. So we can invest in one common foundation that makes all of our

products better. So strategically, it's just very aligned with the

roadmap that we have. The reason why we started doing it now is

that we're a very resource constrained startup. Coin Tracker has a team

of 70 people now, but at the end of the day, there's only so

many things that we can do in a really world class way where I can

get up here with a straight face and say, taylor, I think we're the best

people in the world at doing this and we can't do that with five or

10 different things. We can do that with just a few things. And so it

took us a while to get to the place where I could confidently say,

I truly think we have the best crypto tax software. It's the most accurate,

it's most scalable, it's the most reliable, it's serving millions of customers and

people love it. And I feel like we

finally got there this past year. And so

now it's like, okay, great, we have this core business, it's working well, there's tons

of upside to scale it more. But I feel confident enough that we can now

bite off a second business pillar. Where should we expand from here? And

enterprise was the natural obvious choice there

in this latest bull run. I think another key thing we saw from

doing a lot of customer discovery and user interviews was that unlike

previous crypto bull runs that were primarily retail

driven, like retail driving ICOs or NFTs

or DeFi, this time a big driver of the bull

market was actually institutional adoption. And that came through SEC

approval of Bitcoin and E ETFs and you

know, Michael Saylor and Microstrategy getting like way more mainstream

attention around building a bitcoin treasury. And so because

there's way more institutional attention this time, whereas in previous

market cycles I don't think enterprises were taking crypto quite as seriously,

now we're seeing that start to change and that makes it a more interesting business

opportunity for us to tackle the sub ledger market as well.

Yeah, yeah, I think it's, you know, it makes a lot of sense. You know,

I always tell people that, you know, part of the reason why we formulate a

lot of courses we have in the crypto CFO community the way that we do

is because the reconciliation work is jurisdictionally

agnostic for the most part. Right. Like if you know how to

reconcile, you know, the units of Bitcoin or

ether or you know, matic or whatever in and out of each wallet

and make sure that you have like the ending balances matched to what, you know,

is saying on chain and things like that, then you can apply that information

to whatever tax jurisdiction you want to. And so

the same is true about accounting for a business.

Exactly what you're saying. If you have a really good classification engine and then you

can build out the stuff that's less challenging to overcome,

like integrations with different ledger systems like QuickBooks or

whatever. You've done a lot of the Lego things. So it was,

you know, I wanted to hear your answer. I kind of knew the answer, I

think, to that question because it's, you know, like you say,

it's the hard work is already

done or at least you have a really good strategic way to build

up both businesses at the same time with constrained resources.

So that's cool. Thank you for that.

So, kind of elaborating on

that question a little bit more. You know, there is a lot of competition in

the subledger space serving enterprise clients.

What unique value proposition do you feel that Cointracker will bring

to businesses managing digital assets? Before we got into this

space, I really wasn't sure about that. So I had a lot of conversations

kind of just like this, exploratory conversations with crypto businesses and

funds and VC funds and all this stuff to figure out how are you dealing

with your crypto accounting? What products are you using? What pain points

are you seeing to kind of get a sense of, hey, is this a well

served market? Are people kind of generally already happy with what they have? Or

are there a lot of problems that need to be solved? And consistently,

consistently the same thing that I heard over and over again from

people was that data quality and accuracy and reliability were

major pain points. I talked to countless, so many accountants and

controllers that were like, you know, I'm on my seventh subledger right

now, I'm pulling my hair out. It's not accurate. It's so

annoying. It's the bane of my existence, like, please solve this problem

for me. And so the kind of, I think the key insight there

is that kind of like what you said earlier, garbage in, garbage out.

If you can't get all of your data in accurately, if you can't connect all

of your integrations and if you can't get all your chains in all your custodians,

in all your transaction types in and have that be properly

classified accurately, then ultimately you're either going

to have wrong data or you're going to have to spend a lot of manual

time basically fine tuning and fixing things that don't get

automatically classified correctly to begin with, at which point the

software or product you're using is not very high leverage compared to

just doing it yourself or using a spreadsheet or finding some manual

way to handle it. And again, on the consumer side,

maybe you can get away with that for some users, especially the more basic

users, but for enterprises, it's like they're running a business. In many

cases they're going through audits or they have to have SEC approved financials if they're

a public company. And so accuracy is paramount. It's not

just something you can kind of shove under the

rug. It's core to the actual business running

properly. And so we've noticed that people just really care about accuracy and quality

and even more so than consumers. And so when I get back to what do

we do to differentiate, how is Cointracker different? That's the thing that we really pride

ourselves on is having a really deep bench

of depth and breadth of crypto integrations and then reconciling

those in an automated way so that the actual work

at the end of the day is not weeks or even months of closing

your crypto books. We've seen people have 45, 60 day

closes for monthly bookkeeping, which is crazy. It should be

something that takes under an hour because all the heavy lifting is done, all

the rules are in place, everything is automatically brought in tagged. You

have a really clear automated checklist of. Here are the three things I

need to review. And then only if there's new novel

activity in a particular period do you really need to go in deep

and figure out what's going on. Otherwise you create the rule, you set it and

forget it. It automatically applies to all your activity. You know and trust that it's

working because the checks and balances and reports are there and you're kind

of saving the peace of mind and the time and the hassle of trying to

do it manually. That's kind of like the magic, I think, of what really solves

the problem. It's not some like really fancy AI magic or

anything. It's really getting into the quality of the data accuracy

and getting that part right. That's cool.

So for speaking to that data

accuracy, some companies run their own

nodes. Where do you guys source your data from to make it

special in that way? I think the key thing is the depth

and breadth of these crypto integrations. That's one of the key parts

is having a really good ingestion system. So in terms of

breadth, that means supporting lots of different exchanges,

custodians on chain activity. And we work with a ton of different providers for

that, including redundant providers in case one goes down or one doesn't

have certain data. We have multiple providers that we work with for every

single one of these things. So that could be. We have backup node

providers, we have multiple data sources to cross Check the

numbers. That goes for pricing

of the data, that goes for the integrations, and that also goes for the direct

integrations with these custodians and exchanges. And the second thing

is the depth of those integrations. So it's

not just like, oh, we built integration with Coinbase, that's the end of it.

It's like Coinbase is also evolving. Their APIs are changing, they're deprecating

GDAX and they're making it Coinbase Pro. And then Coinbase Pro is getting deprecated and

becomes Coinbase Retail Advanced Trading. So it's about building deep

relationships with these companies too, like having shared

slack channels, knowing the engineers and the executives,

making sure that those people are actually using Cointracker too. So that

when there are changes that we know ahead of time, we're not fixing something because

it's broken in production. And the users calling us and complaining and saying, why the

hell is this not working? It's, hey, we know this API change is coming. We're

going to make sure it's a totally seamless transition so that users never have any

problems to begin with. So it's, it's the depth of the relationships and the

connections and the support that goes into actually making sure these things are

going to be future proofed as those integrations evolve over time too. So I

think there's like a lot of work that goes into doing that. Really? Really. And

in terms of breadth and in terms of depth of those integrations. And

then once you have all the crypto data there, then it's the rest of the

reconciliation pipeline, making sure they're categorized correctly, they're

tagged correctly, they're priced correctly, they're mapped to general

ledger accounts correctly. So really fine tuning and honing that. And

again, it comes down to user obsession. Like we ourselves as

Cointracker use our own subledger for our company and our

company's crypto activity. So if it doesn't work, our controller is going

to come yell at me and say we can't close our books. So we're

dog feeding our own product, we're relying on it ourselves and that forces us to

really care about the quality of it. That's awesome. I was going to

ask you to dive deeper into the pain points that

those users that you mentioned were alluding to, but you

answered a lot of that in that last response there.

I wanted to close things out by giving you an opportunity to talk a little

bit about, you know, what's coming in the next

year, two years, five years for

Cointracker. And what do you anticipate kind of the roadmap looking

like? And obviously it's not going to be the same

now as it's going to be in five years, but what do you anticipate happening

with product releases in that time frame? Well, also, Taylor, as

you know, five years is an eternity in the crypto space. So by

then it might be like, you know, mining bitcoin on Mars. But

I think at a high level, like, it comes back to our mission,

and our mission at Cointracker is to enable everyone

in the world to use crypto with peace of mind.

And sort of like peace of mind is kind of the operative phrase there. Like

right now, even now, it's come a long way over the last 15 years. But

even now I wouldn't say I have a high level of peace of mind

using crypto. I have a high level anxiety using crypto. It's like, oh my

God, my private keys, my hardware wallet, what if I lose. Lose this? Where's that

backup phrase like, what happens if I die? How is my new daughter going to

get access to this in 20 years? It's still pretty crazy.

And certainly taxes and accounting are a key part of that. People are freaking out

about their taxes all the time. I talk to thousands of people in this situation

literally every year. And so the first stab we've

taken at this is kind of trying to decrease that anxiety level and increase the

peace of mind people have around taxes. And we've made a lot of progress there,

but there's certainly a lot more, a lot more work to do there. I want

basically every single crypto user to think that crypto

taxes is a completely solved problem, and we'll know that that's the case

when it's not a discussion topic, it's not something that anyone talks about

because it's a solved problem. So we have a long way to go there, but

that we're going to definitely continue doing that over the next five years until it

is just a totally seamless problem. And I see signs of hope there. For

example, last year, I think taxes, I do a lot of crypto

activity. I have thousands of transactions a year. And I think crypto is probably one

of the easiest parts of my own personal tax return because there are tools like

Cointracker and others that just kind of automate a lot of this in a way

that there aren't the same level of sophisticated, technically savvy tools for other parts

of tax. They're just not as cutting edge in the tech Stream.

So I think that we really want to see it as a solved problem. I

think, number two, we want to extend that technical

foundation I was talking about to other segments, and that can

include things like businesses. Ultimately, crypto is going to be

really successful as a form of money and digital sort of

commerce if both the consumer side gains

adoption and the business side. Right. That's what makes the economy go around. People are

spending money at businesses, businesses are spending money, like hiring people for labor.

It can't just have one without the other. And I was just

talking to the CEO of Bridge, which is really

cool crypto company, and he was sort of estimating that maybe like

5% of the global population has touched crypto in some way right

now, which is still so early, but maybe less than, you know, less than a

tenth of a percent of businesses have touched

crypto. So we're still so nascent there. And I think that is

going to grow orders of magnitude over the next five years, which means that

crypto is going to go from this nascent, weird thing that people do in like,

you know, the gig economy and, you know, like remote work and San

Francisco or whatever, to probably it's going to become a

very mainstream form of digital Rails and we're seeing the rise of

stablecoins and things like that, Bitcoin treasuries. So I think in five years

that is going to change tremendously. And it's going to mean that there's going to

be a huge need for people to have products and

services that enable them to use crypto on a daily basis the

same way there is for traditional finance. Like people have Mint and

TurboTax and QuickBooks and all of these products that they use on a daily

basis to track their finances in tradfi. All of that is going to need

to adapt for the crypto world. And I hope Coin

Tracker is at the center of that. Yeah, I think it's. I mean, it's the

reason for the name of this whole podcast niche to necessity. I think that in

the same way that I don't call myself an Internet accountant anymore because it's

assumed I know how to use email and websites and things like

that. I think in five to 10 years, people won't call

themselves crypto accountants anymore because it's going to be assumed that you know how to

transact or at least handle data that comes from on chain

activity, or it's going to be so simplified and abstracted away

that it's not really any specified knowledge is going to be needed

at that point anymore. So it's the whole reason for niche to

necessity to exist is because I feel like we're witnessing that transition

now. And you bring up some amazing points about

bitcoin treasuries Microsoft just voted on. They voted it

down, but they had a vote on whether or not Microsoft should be holding

Bitcoin on their balance sheet. Amazon, I don't know

if they had the vote yet or they're about to have the vote, but they're

going to vote on whether or not they should be holding some bitcoin. And I

think the more and more companies try to or at least

evaluate that decision, I think we're going to

see some amazing game theory playing out in the next couple of years as well

if we see any major governments start to buy up a significant

holding of Bitcoin as well. And I think that's when things

will get really interesting from a price and

demand shock perspective. But this is part

of why we're here, to watch the ride.

So one other thing I wanted to touch on with your response there as well

is, you know, to your point about this being easier than other

parts of taxes, I think it's one of the first times where you can in

real time make proactive steps throughout the year

to document in software and platforms like you guys

offer. People don't have to just check in in February,

March, April of each year. If you make some

complex transactions, log into your coin tracker or whatever crypto tax

software software you're using and code those

transactions then so you have it fresh in your mind. If

you don't want to do that, you know, sign up for a ether, sign up

for an Etherscan account and you can put little memos in there as well.

But I think that once people educate themselves on

how to properly take the steps in this space, it is, it can

be easier if you take the right proactive steps throughout the year. So that's

a really good point. And then the last thing I want to say on that

is, you know, I see on every day on

crypto tax subreddit or things like that people straight

up won't sell their crypto because they don't know how to handle it from a

tax perspective. So I think that being able to

overcome that so people don't have a fear of selling from

being concerned about how to take positions on their

reports. I think it's a really key hurdle to overcome as well.

And there's still people that feel that way. So the

last question I had is related

to users and developers. What advice would you give

to crypto users and businesses as they prepare for more complex

regulatory environments and just the

wave of innovation that's coming in the coming bull run.

I think it comes back to something you said earlier, which is just having good

records and being proactive about this stuff is an investment in your

future self. It is saving you from a future audit,

from a future headache, from a future nightmare where you're going to have to go

back and undo the screw up from before and spend three times

more fixing it going forward. So investing in just

keeping track of your activity and having good records is a gift to

your future self. So I would encourage people to

really take that seriously. Keep good records. That's my number one takeaway

for people. And then like you said, I think there's going to be a tipping

point. There's going to be some game theory where crypto adoption

doesn't happen slowly. 30% year over year, like B2B SaaS,

it goes flat for two years and then it goes vertical the next

year. And so be ready for these step function changes. Adoption

is not going to happen gradually. It's going to happen really, really slowly and

then instantly. So be ready for really dramatic changes.

That's awesome. Thank you so

much for joining us here today, Chandan. And I'll

give you one last opportunity for any closing remarks you'd like to make or how

users can access your tool or things like that.

Thank you so much for having me. Great conversation. Really great getting to know you

better, Taylor, and being part of the crypto CFOs community. I'd

say if people are interested in learning more about Cointracker, you can check us

out@cointracker.com or you can message me

on X at C G L O D H A at

cglota and I'm happy to chat with people. I love talking about

crypto, taxes and accounting. I talk

people's ear off more than I'm sure they appreciate at times about crypto and so

it's always great to connect with someone that can have a conversation about

it as well. So really a pleasure having you on here and hope to

work with you more in the future. Okay, awesome. Thank you so much. All right,

take care. Shannon.