The Wolf Of All Streets - Watch This Before You File Your Crypto Taxes | Dan Hannum, ZenLedger

Episode Date: March 10, 2022

Tax season is quickly approaching, so Dan Hannum from ZenLedger came on the show to provide listeners with a crash course on how to properly pay crypto taxes. Did you know that every transaction in crypto is taxable and that you may owe more than you think? This episode is for anyone that has received crypto, bought crypto, traded crypto, earned crypto, or sold crypto. That’s 100% of you! Don’t fear, there is still time to get your taxes done right and this episode is your starting point. -- Arculus: Secure your assets, secure your future, with Arculus. Arculus is the crypto cold storage wallet that combines the world’s strongest security protocols with an easy-to-manage app. Store, swap, and send your crypto all with a simple tap of your Arculus Key™ card. Order the safer, simpler, smarter crypto cold storage solution today at https://amazon.com/arculus --- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co ーーー Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWolfDen/members

This episode is sponsored by Arculist. Stay tuned for more information on them later in this episode. What's up, everybody? I'm Scott Melker, and this is the Wolf of All Streets podcast, where twice a week I talk to your favorite personalities from the worlds of Bitcoin finance, music, art, sports, politics, basically anyone with a good story to tell. Now, when I got into crypto in late 2016, it was supposed to be this wild west for traders where you could do whatever you wanted and you

never had to pay taxes on any of your gains. At least that's what we thought. And boy, were we absolutely wrong. And a lot of people have learned a lot of very hard lessons since. The reality is actually the United States is a very complex place to file your crypto taxes. And almost everything is a taxable transaction, seemingly. So to dispel some of the myths, to try to demystify the entire thing, I brought in my friend from Zenledger, the COO of Zenledger, Dan Hannum, to talk about doing your crypto taxes. Dan, welcome. Thank you for joining. Yes, Scott. Thanks for having us on. So would you say that that intro was accurate? That's how most people you speak to viewed it when they probably got into the space? Yeah. Yeah. I mean, it's funny to see the

change of attitude, I guess, over the last probably 10 years. I think when I first started in 2012, 2013, it was like super crypto anarchists, like F the government, we're not paying tax, we're not doing anything. And then you had like 15, 16, 17, where people started to make their first like large amounts of capital. And then the whole like, I'm moving to Puerto Rico crowd, like I'm expatriating and going to some other country crowd. I think we've settled into like kind of a happy medium where I think people are aware of crypto tax and are just looking for great solutions to, you know, make sure that the complex transactions we're making within crypto get reconciled, you know, accurately. So it's been interesting to see kind of the evolution of the crypto tax argument or, you know, viewpoint from the outside looking in. Yeah, obviously, Zenledger is the platform that I use. And it would be effectively impossible for someone who transacts regularly trades with crypto to do this on their own, right? A spreadsheet just doesn't hack it anymore. That's how I started. Obviously,

when I was first doing it, I didn't know what I was doing. But literally, everything is taxable. Pretty much. Yeah, I mean, we can go into like high level and get as deep as we want, but I mean, you have it right. Like that's where the business started, you know, in 2015, 2016, 2017, we're trying to figure out, you know, I've been buying, selling, trading,

making, you know, making good profits. And there's like two platforms on the ecosystem, which is like bitcoin.tax, like cointracking.info that like both just kind of lacked in integrations and lacked in UI, lacked in UX, didn't have customer service. And like, it was just kind of like a great concept without kind of with, you know, not as great execution. And essentially we were doing the same thing. Like we were using Google Docs and Excel spreadsheets on handwritten notes,

and it was just like a nightmare. So like there has to be better, you know, better software and a better system to do this. And that's kind of the origin story of Zenledger. Right. So even when I started using Zenledger, it was primarily Bitcoin and Ethereum and anything that was on the Ethereum chain. Now it seems like there's this proliferation of layer ones, layer twos, DEXs, all of these things. And of course, there's challenges there because they're decentralized, right? It's not necessarily attached to someone. So how do you scale as fast as crypto is scaling so that people can accurately report? Yeah. I mean, frankly, I don't know if you can, right? And then that's like the best part about crypto is innovation never stops. And the hardest part is that it never stops, right? So even us that like live and breathe

this ecosystem, like there's always like, i think i have 460 tabs open right now right it's like there's always some new information some new blog posts some new white papers some new thing that i want to learn or look at or whatever i mean the way that we look at it is essentially when you look at the crypto tax market in like 2018 2019 you had like us coin tracker token tax we all had like the same integration we all like supported coinbase we all supported ledger we all supported finance we all supported trezor we all had like pretty okay ux we all had like the same integration. We all like supported Coinbase. We all supported Ledger. We all supported Binance. We all supported Trezor. We all had like pretty okay UX. We all had like pretty comparable pricing.

So it was like, which one do you like better, right? And then over the last probably two and a half, three years, we've really seen like a difference between us and some of the other platforms leaning into that integration side. And so when you look at crypto tax, if you're using DeFi protocols, if you're using NFTs

and you can't account for that accurately, then just your simple Coinbase to Ledger doesn't really matter, right? You can't have like an 80% complete tax report. It has to be 100%. And so our kind of strategy is casting the widest net because if we can support the most amount of interest, the most amount of tokens, the most amount of blockchains, the most amount of DeFi protocols, the most amount of NFTs, then that net gets super wide. And then we can literally aggregate all that into your tax report. So it's been definitely a big strategic and competitive advantage for us to be able to skate where kind of the puck's going. I think that's largely based on like the people at the top of the company that are using these protocols and using these products. We've seen some of our competitors that are like more kind of web to native individuals that saw

an opportunity and built a business in crypto, but like don't use crypto. And so they're not like using FTM. They're not using AVAX. They're not using Solana. They're not using Luna. They're not bridging. They're not using L2s, right? And so because we actually use these things, we have data sets that we can build integrations off of. So yeah, you know, I think of the strength on our retail platform has largely been the fact that, you know, we support more exchanges, wallets, protocols, platforms than anyone else. Yeah. You mentioned obviously NFTs there. And I think there's a huge amount of confusion over what's going to be taxable with NFTs. And maybe that clarity hasn't even come. But on the very top end, how should people approach their taxes with NFTs? Yeah. So with NFTs, I mean, there's a few different kind of

rabbit holes we can go down. There's the biggest distinction to begin with is, you know, from a creator investor perspective, excuse me, or a collector investor or a creator. And so how you interact with NFTs can have a big difference. If I'm a creator and I'm selling NFTs, that's largely going to be income coming in, whether, you know, whether I'm in 500 or 5,000 or 10,000. And if I'm a buyer collector, then it starts to open up the doors to more viewpoints you need to be aware of. And so there's kind of three things to be aware of is how are you acquiring the NFT? And so there are some platforms like a Nifty Gateway, for example, or like Adapter Labs or like a Flow, where you can go from my credit card into NFT. And so anytime you go from dollars or fiat into NFT, whether it's a fungible or non-fungible

token, you're going to have no taxable consequence or taxable event. So you can buy as many NFTs as you want with dollars. Just as we know, that kind of limits the market. Most of the NFT platforms are kind of crypto to crypto. And that's really where that second bucket comes from. I'm using ETH, for example, to buy this NFT. You need to know the cost basis of your ETH. When you trade your ETH for your NFT, that's a taxable event. You need to be able to look at the gain or loss. You then have a new basis with the NFT. And so that can be a big difference for you.

If I'm using existing ETH that I already have, those factors come into play. How long have I held it? When was my original cost basis? And then there's the third kind of way of acquiring, which is like net new crypto into NFT. And that's typically like the best if you can't do fiat into NFT. So yeah, so the three main items with NFTs you can have

is really using existing crypto, which can open you up to looking at the cost basis, your gain, your loss, your holding period. You have going from dollars into NFT, which is generally a non-taxable event, but it kind of limits the amount of NFTs that you can buy. And then you have buying fresh crypto for the NFT. And that's typically going to be kind of the best thing that you can do outside of going from dollars to NFT. Because if you buy ETH today and then five

minutes from now, sell that ETH for an NFT, you're going to have a very small gain or loss unless crypto is super volatile on the day. If you've been consistently reporting first in, first out FIFO, can you still do the latter? Because a lot of people's fear obviously is, I bought Ethereum at 80 bucks. I don't want to sell $3,000 Ethereum to take a taxable, you know, gain, pay 20% taxes, which basically increases the price of the NFT I'm buying by 20%. Yeah. I mean, it depends on who you are and what your scenario is. For some of the NFT users that we've seen, they're relatively new to crypto, which is kind of the best part about NFTs. They brought in such a net new crowd. But for people that have been in crypto a while,

more of like the kind of crypto geezer whales, that FIFO challenge can be challenging for them. Because essentially, once you pick that accounting method, you're likely going to want to use that accounting method moving forward. But you can use, you know, I could be in crypto for five years and still use LIFO. I just had to, you know, determine that. I've started doing it, which I unfortunately did not. That's a huge challenge. That's one of the things you look back on and you go,

if I had only known five years ago to report in a different manner to start this entire process, everything would be wildly different, but yeah, live and learn. So there are obviously probably a ton of myths or questions that you guys get on a consistent basis that you have to dispel. What are the biggest, would you say, things that people are getting wrong when looking at their crypto taxes in the United States? I think the first one that we get is that things that happen on chain are untrackable, untraceable, and the IRS will never find what's going on. And that's like the biggest and easiestly dispelled myth that we have, right? If you've ever used ETH scan or SnowTrace

or FTM scan or BSC scan, like you've entered in your own address, you can see the ins, the outs, the fees, the address that it went from and went to. And so like everything that's happening on-chain is very easily trackable and traceable. And because most people get into crypto using a KYC exchange,

go from fiat into crypto originally, you can start to pair together your centralized exchange via your decentralized address and see what's happening. So that's probably the first one is, you know, everything I've done is DeFi and NFT is like, they can't see that. It's very easy to see. I can literally open up DeFi. Easier to see than cash. It's extremely easy, right? So that's probably the big one. I'd say the second one comes from, when you look at crypto,

there's kind of three main buckets. And it's similar to the NFT stuff that we just talked about. Going from dollars into crypto, non-taxable. Going from crypto to crypto, taxable. Going from crypto back into dollars, taxable. That second bucket of crypto to crypto really is where like a lot of the misconceptions come from.

If I trade Bitcoin for ETH, it's non-taxable. It's a like kind exchange, but it's not. If I go from ETH into ST, you know, ETH, or if I go from Bitcoin into wrapped Bitcoin, taxable events. So that's a big misconception is crypto to crypto is not taxable. I'd say that the other one is treating your DeFi or NFT activity in ETH terms instead of dollar terms. And we get that a lot. I bought an NFT for one ETH. I sold it for two ETH.

I must have a gain, right? Maybe if you bought ETH for 500 and you sold it for 200, you bought one ETH for 500. You sold two at 200. So you bought it for 500. You sold it for 400. So in ETH terms, you gained one ETH, but you lost $ hundred dollars. And then similar on the back end, right? I bought it for 10 ETH. I sold it for eight ETH. I must have a loss. Depends. That 10 ETH that you bought it for could be worth a lot less than the eight ETH you sold it for. And you could have a gain even in an

ETH loss terms. So the big thing that we see is making sure that you're looking at things in dollar terms. And then maybe not a misconception, but just something that we see is making sure that you're looking at things in dollar terms. And then maybe not a misconception, but just something that we see over and over again is not putting money off to the side for taxes. And so people are buying NFTs or selling NFTs or minting, they're doing et cetera, and they're doing extremely well. And then they get hit with this $100,000, $200,000, $300,000, $400,000 tax bill. And instead of taking 20% or 30% of their proceeds on every sale and putting it into like a stable coin or something and just putting it away, even with a stable coin, go earn interest on this like tax portfolio account that you have, right? Go earn 8%, 10%, but keep it there. So when the tax bill comes, you're not having to scramble or sell your

favorite NFT or liquidate your portfolio to cover your tax bill. So maybe not a misconception, but just kind of like a user error that we see a lot. That to me is the single, maybe most important strategy that people need to understand. Even if you go Bitcoin to ETH or ETH to Solana and Solana back to ETH, whatever it is, you need to basically take 20 to 40%, depending on your tax bracket, of that right out to dollars. Because you might not have it when the time comes to pay your taxes. And you can park it somewhere in USDC, obviously, and earn yield. That's what I do. I mean, I just 40% mindlessly, just to make sure and be over and I park it, I earn some yield on it, and then I pay my taxes. But if you haven't done that, you hear these horror stories, right? I had a friend, I think it was 2018, He had done exceptionally well in 2017, same thing you were talking about, but he did well back into Bitcoin,

right? He never realized into dollars and he was trading all these altcoins and made millions of dollars. And then it came time for paying his taxes the next year and Bitcoin had crashed. His portfolio was a fraction and he owed more in taxes than his portfolio was worth. Yeah. I mean, we see it, we see that even now with NFTs, right? They buy, sell, trade NFTs and they, they kind of like paperclip was what I call going from like, you know, a very small thing. It's like a big thing. Like they go from a very small mint into like owning a punk or owning a board, a guy club or owning a squiggle or whatever. Right. Then the tax bill comes in. The only liquidity you have is that NFT that you just traded for. So do you really want to have to sell the board ape to pay your taxable? No. So definitely want to make sure that you're putting some away. And the nice part is,

you know, going into dollars or going into USDC are both going to basically have the same impact. If I trade, you know, if I trade X for USDC or it's going from X into dollars, same impact, but keeping out into that stable point. Then in January, February, March, April, May, as you're going throughout the year, park that 30, 40% into a yield generating event or account and earn 10, 12, 14, whatever percent on that, but know that you have that put away. So definitely valuable because we've seen, I'm sure we both have some pretty crazy horror stories. Horror stories. Made a lot, don't have enough to cover their bill,

have to liquidate, or even if they liquidate, still don't have enough to cover. And so something to just be aware of as you're buying, selling, trading. And it's so complex. You hear all these horror stories and you wonder why this can't just be so much easier. Do you think that there's hope that the IRS,

that the government will pass sort of more reasonable, I mean, for them too, right? Because for them to go down this rabbit hole and try to audit you would require resources that they unlikely have now. They may have them later and come back, so there's no reason to pretend. But do you think that they could just simplify? I mean, it seems very obvious that you could just do it like Forex, right? My dollars go in, my dollars come out. That's my taxable transaction. Everything I do inside is sort of irrelevant. I don't think that'll happen.

But do you see a world where they simplify this for us? I think there's simplifications that come and better guidance that comes. But the classification of crypto, I don't think it's going to change. And what I mean by that is when you look at Forex, the way that Forex works is treated as a currency and not as property. And so the IRS's first guidance on crypto came in 2014, where they treated crypto as property. And that's kind of what cascades into this situation we're in today. And that's why that going from Bitcoin into ETH or ETH into Bitcoin is a taxable thing. Because in the IRS, it's usually going from one piece

of property into a new piece of property instead of currency to currency or commodity to commodity. So I could be wrong, right? But I don't think they're going to change on that stance. It's been in place for eight years. They haven't changed it yet. I think what will happen is more guidance around some of the gray areas that we have. Like for example, we have the Jared case going through courts right now on staking returns. Should they be taxable? Should they not be taxable? To be clear, anyone's listening to this as of, I don't even know, March 7th, you should still pay your income at the time of receipt. There is unfortunately some really bad reporting from providers in crypto that was like, the IRS is saying it's non-taxable. It's not. That was just one court case that has no impact on tax court or from the IRS. So still treat your staking rewards as taxable at this time. Hopefully,

we'll see if it changes. But so in general, I think we'll see some more guidance around staking on airdrops, on forks. I think we'll see more immediate guidance on like DeFi specific and NFC specific events. Because right now we're kind of taking how the IRS treats fungible items and looking at that from a non-fungible perspective, whether it's an NFT airdrop, treating that the same as a normal fungible airdrop. So, yeah, I don't think we're going to change from a property into a currency. I would be very, very skeptical that it happens. But my goal and my hope is that they'll provide better guidance on DeFi and NFT related activities. And then, so for us as builders of software,

we can point to IRS section two, paragraph three, instead of like, well, you could take a conservative approach or aggressive approach. Which one do you want? Right. I wouldn't much rather have anything our customers would much rather have. This is how it's treated. And then you plan for that, right? Instead of like, well, you can treat it one way or the other. So hopefully more guidance is coming down the pipeline on some, you know, newer activity. Speaking of airdrops, anyone who has a MetaMask wallet or address and has interacted frequently with Dexys, especially if you have like a Binance smart chain address or something, you have people airdropping coins into your wallet that you don't even expect or know what they are all the time, right? Most of them are literal scams, right? But these tokens are just being dropped in. You didn't ask for them. Do you have a taxable event there?

It depends on the mechanism. And so some airdrops are literally just like they come into your wallet, right? Some you have to claim. So if you have a claiming event, typically it's going to be harder to say, I didn't want this. Yeah, you didn't. You actively did it, right? You made it. You actually did a step to go get it. And some claims are like multi-steps, right? It's not just claim. You have to like, there's seven steps along the way for you to get the end asset. What we've seen, the best way to treat some of those items is essentially just ignore those items. And that seems kind of like, well, that makes sense, right? But when you think about it, you know, in 2015, 16, 17, what we would typically say is, hey, send it to a burn contract.

Say, I don't want this asset anymore. I am literally disposing of it for zero. I don't want it. But unfortunately, kind, the scammers have caught on. And so now if you interact with the contract or the contract address or the token, you can actually open yourself up for some type of liability on your assets or on phishing scams or things like that. So sometimes it's better to not even touch the asset and send it anywhere or do anything or send it to a burn. Don't even touch it and just essentially ignore that specific transaction.

And that's a nice thing that Zendler provides is you can look at like the transactions page, sort by ABC token, and then find the one on that date of, you know, 10 incoming ABC and then ignore that. So it does get tricky from an airdrop perspective, looking at what that is. And then the claim has a big difference.

And then what we talked about earlier, the NFT side is essentially similar because there's no NFT specific guidance. So if you have like a CoolCats NFT and you get milk tokens in return, it's very similar to earning an airdrop from owning a fungible asset and getting an airdrop in return, which is typically income at a time of receipt based on the fair market value of the asset. You can see why people would just want to buy and hold and not deal with any of this, right? Yeah. I mean, it's definitely a good strategy, right? I mean, for the vast majority of people buying and holding and dollar cost averaging is probably better for them than trying to trade anyways. Obviously we have, you know,

we have individuals, we have a lot of clients, we have friends that we both know that like do very well in trading. But for, you know, for each one of those, we have that we both know that like do very well in trading but for you know for each one of those we have like five or ten that like tried to use margin got liquidated tried to sell this into that and time the market wrong and their whole portfolio is gone so i'm a i'm an advocate for using your money in any way you'd like but for the vast majority of people dollar cost averaging and just buying and holding is gonna be a much better strategy for you than trying to time the market and trade but you got got to figure out like, you know, who are you? What are your skill sets? Do you have an edge in the market or knowledge or, you know, some type of way to earn, you know, net returns outside of taxes. And for those people, you know, we want you to trade as much

as you want, but it's, you just got to be careful with it. As a platform, you actually have a direct relationship with the IRS, correct? We do. So we have a separate entity, part of the Zenledger umbrella, that has worked with the IRS, civil and criminal investigation units for about two and a half, three years now. Wow. So what does that look like? What does that mean? Yeah. So the big distinction that we make is that because it's a separate entity, we don't send

any Zenledger customer activity to the IRS. So it's not a two-way street, it's a one-way street. We only get information from the IRS into cases that we're helping them with either civil or criminal investigations. And so essentially what we happen in as entrepreneurs, we are trying to figure out how can we package up kind of this IP that we built. And essentially when you look at what we built, it's really like a giant ingestion engine, right? We support over 500 different exchanges, over 12,000 different tokens, over 60 different blockchains, over 50 different DeFi protocols and NFTs. So essentially, what we do is we take large amounts of data, we bring it in, we clean it up and provide an export, which is tax reports. And so we saw that this like core infrastructure could be used in government

agencies to be able to look and see and track, you know, taxable revenue that they may not be collecting. So, you know, it's definitely something that they are continuing to invest in. We just announced our renewals last week of both of our contracts and think that we'll continue to expand it to not only domestic federal agencies, but state and international agencies. So, you know, as we've seen in the last like couple of weeks, you look up and you see, you know as we've seen in the last like couple weeks you look up and you see you know i think it's like 60 or 70 million dollars in crypto donations to ukraine we see russia that's now being like sanctioned and their assets now

they're trying to try to collect crypto instead of dollars or use swift so as crypto becomes more of like a national security like the next ransomware platform i can be like hey drop a bag of cash on this doorstep. They're going to say, pay me in crypto. So we think that that side of our business is going to grow exponentially. But yeah, you know, so, so right now we do work with, with federal agencies that's that data is, is, is separate, but I think for most of our customers are not as worried because they are

using our platform to file their reports with the IRS. Right. So like you are a self reporting or activity by using our platform to file their reports with the IRS, right? So like you are self-reporting your activity by using our platform. So yeah, and then we try to leverage kind of efficiencies on both sides. So for example, on the government side, we've had some cases that have 5, 10, 15 million transactions. So we had to build import capabilities up to that threshold that we can now package and leverage across the retail side. So if you're a high net worth individual or using algos or bots and racking up those transactions, we can ingest that super quickly

because we have to from now. So we have a nice kind of symbiosis on the core platform, but they are two separate entities. We all believe and know that cryptocurrencies are the future, but it's still very scary to be your own bank and have to secure your assets. Most of the traditional hardware wallets are hard to use. They're clunky and people lose their private keys. It's not really that efficient. And that's where the Arculus key card comes in. I absolutely love this thing. I've transitioned largely

to using it for most of my assets. It's literally just a card that you tap right on your mobile device. You can send, receive, swap, buy, and sell crypto with that simple action. It's literally amazing. There's no cords. There's no charging. There's no Bluetooth. The only person that has access to your crypto is you. You guys have got to try it.

And guess what? You can buy it right on Amazon. Go buy your Arculus on Amazon now. Huge for catching scammers and people using ransomware. And I mean, the IRS can't do it themselves, which leads to the question that you hear all the time, which is that people in the crypto space like to think the IRS is woefully undermanned. They don't have anyone in place that can vet this. So I'm going to just go ahead and fudge my transactions, right? But isn't there, A, that may be true. I don't know. You can tell me if that's true in your experience, but clearly they can come to you guys and go through the transactions. But B, what's the statute of limitations? Because you're betting on the fact that they won't get there, right? Yeah, there's a few different things to be aware of, and we're not the only ones. I mean, our software on our government side is more like

blockchain analytics and kind of forensic accounting, but we're not the only ones, right? You have Chainalysis, you have Electric, you have TRM Labs that are more like high-level blockchain analytics. So they're using a multitude of different platforms. We clearly aren't the only ones that have, you know, contracts with federal agencies. So not only will those software continue to improve, but there'll likely be new ones that come out, right? So when you look at what we talked about earlier, that like misconception of on-chain activity is not traceable, like it's super easy, it's super traceable.

We give examples like Nansen or other platforms where, you know, you can literally look and see what assets are moving, who's moving what. When you look at like the IRS to say that they're understaffed is likely correct, right? Like they are understaffed. Will they be understaffed for much longer? Probably not. They're getting $80 billion in government funding to increase their workforce and software capabilities. And then the other items that they put in place to kind of have an initial catch-all is really what's kind of created the boom in our business is really the movement from the virtual currency from the top of the Schedule 1 to the top of the 1040. So now every single US citizen and their tax professional have to check off, have you ever bought, sold, traded, or acquired virtual currency?

You say no, and it's yes. That's like literal tax fraud. So like they are letting you create your own fate, for example, right? So if you're like, they're not going to catch me and F the government, and then you check no, and it's yes, like good luck, because they're likely going to come and get you, right? And so that's kind of their initial catch-all is like, let's let people self-report that activity. And if it's yes, then they're going to look.

We've seen some items, and I think that's the value of Zenlender, that have created some red flags within crypto from audit perspective. And what I mean by that is, you know, what the IRS is trying to do in addition to getting retail platform or retail investors to talk about their taxes

is also getting the brokerages to now have universal reporting but we've seen a lot of errors with that because of the nature of crypto so 1099 miscellaneous 1099k or 1099b from a coin base for an ftx or whoever isn't really great because you're not just using that one platform you're trading buying selling using multiple exchanges multiple wallets multiple blockchains and so that's why that like zendlager advantage comes into play is you aggregate it all into one formal document your 89 49 instead of a 1099b so i think we'll start to see more audits unfortunately because the exchanges are trying to go to this 1099b reporting requirement which doesn't really fit the model of

crypto and we've seen a lot of slags and we've seen the IRS sue Coinbase over this. Like, yeah, so it's weird because the IRS is kind of viewing things. It's like an off-chain, like everything's going to go off-chain. It's all going to go through centralized activity. And if you've ever used crypto, it's like literally the opposite. Everything is going on-chain. Everything is going into a wallet. Everything is going into a blockchain.

Everything, all of your liquidity is likely happening in DeFi, although you could use like a BlockFi or Celsius or whatever. But everything's going on-chain and they're kind of building for for this off chain world. So we'll see what will happen. But yeah. The 1099 B structure is so ridiculous because everybody just uses the Coinbase or all of those generally to buy their crypto. Then they send it away. Right. And once that transaction leaves, you need to be able to match it. Right. You have to, you have to say, that's my wallet. This is where it went. Self-transfer,

not a taxable, right? They would even just say that's a taxable sale because it's left and it hasn't arrived, right? In theory. Well, that was the issue, right? Coinbase started reporting 1099Ks and with the 1099K, they record those outgoing transfers as proceeds. So if you send one Bitcoin off for 50K, they'd say, oh, you sold it for 50K. And then so the IRS would get this report from Coinbase that says Scott sold Bitcoin for 50K. And Scott didn't sell his Bitcoin. He sent it from Coinbase into his ledger. To my ledger or whatever. Yep.

Or whatever, right? And so that's like we've had, we're fortunate enough that we've never had a user of Zenlender ever be audited. But we've had a lot of users that have been audited that need to come use Zen Lunder to defend themselves and say, hey, Coinbase is reporting that I made 250K, but I didn't. I sent this all to this wallet. It's still sitting there. And so then they'll use R8949 or Schedule 1 or Schedule A, Schedule C that are basically aggregates and show here's what it actually looks like. And so we've seen some unfortunate cases where the IRS gets a number from Coinbase and that number doesn't match up like what they're saying. And then you have to go like show the IRS that Coinbase doesn't know what they're doing.

So it's like fun stuff, right? So I guess it's fair to say we're still early in crypto, right? And with crypto taxes. So, you know, that's the silver lining, I guess, is that this will all improve. But, you know, it's just really, really early. Yeah. I mean, that's the goal, right? Like we've seen attempts at improving. We've seen brokerage rules that are going to an infrastructure bill and build

that better bill that are getting kind of like heavily vetoed by the crypto community. This whole like brokerage is Uniswap a brokerage. Should they have 1099? Like, so like we are kind of going forward, but not like always in the right direction. Right. Uniswap probably shouldn't be giving you a 1099 because they don't have your information they just have a wallet but so like the regulators like well we want to like we want to give you the right stuff to do but like you're giving us stuff from stocks to apply here same thing about like we're using the howie test from the 40s to look at it the security and crypto 80 years later right so

maybe we'll go forward. Maybe we won't. But like us and other providers like Coin Center and like Blockchain Association, like we are trying to like sit down with regulators and be like, this is what you need for like real tax reporting. Here's how things actually work in crypto. Here's how you can actually collect that revenue.

Here's things that are actually going to be beneficial or things that you think that are going to be good, like 1099Bs that aren't going to be good and are going to waste a ton of resources. So our goal is at least they're being more willing to speak with people actually building these things. And at least hopefully we'll have some input into whatever the next regulation or guidance is versus basically them just saying whatever it is and us having to like deal with it. Yeah. Your day-to-day must be absolutely exhausting. Just listening to this, because not only are you building the product, but you have to deal with this sort of ever evolving regulatory climate. It's crazy.

It's like, it's a lot. I mean, that's what like we always get, right. It's like, well, I'm just going to use my own like spreadsheet. It's like, good luck. Like millions and millions and millions of dollars into building this and like if you think you can do it better i hope you try right like try we love competition if you do it better than us we're gonna have to figure out what you did and do it better right so try it but it's a lot harder than people think it is um but not only like regulatory but you look at like crypto there's no universal reporting from exchanges so you have a bit that provides like an api and a csv you have this provider that doesn't provide either. You have to go like email their support team for

your files. You have this thing that like only does this. So it's like, in addition to like regulatory risk, we have to be looking up every day at tens of thousands of integrations and making sure that BlockFi didn't change their account setting button from the left to the right because our instructions say go to the left side. So it's like, it's a lot of maintenance um and that's like the beauty right is we aggregate all this stuff for you but the challenge is for us internally is like we need to add the next new thing and make sure that all the things that we currently add support and then their apis go from v1 to v2 to v3 to v4 and they don't tell anyone they just change it so it's it's a it's a fun business to build but like the exciting part is we get to interact with all of crypto. So we have to aggregate it all.

It's a fun business to build, but people I don't think go accounting. It's what I want to do. Right. And so, and you didn't, I don't think do that either. You have a pretty crazy backstory, right? Talk about how you got here. You're not an accountant, correct? So talk about the beginnings.

And I saw a pretty major article about you that maybe people didn't expect you to get this far, correct? Yeah. No, I've had an interesting life so far. I mean, I think that the article you're talking about is Forbes did a profile on me like a year and a half, two years ago, which was exciting because I had a lot of people in my past that only saw like one half right like the troublemaking half and then a lot of people that only saw like the good half so it's fun for both sides to see the opposite side right you had like all these like good half people are like what do you mean you did all that and then all the bad half they're like what do you mean you've done all that so i don't know i mean been

been there done that did a lot of fun things essentially i was just a young kid uh who was selling a bunch of weed to a lot of his friends and and looking back on it it's super fun or like it's interesting to look back on now because it kind of almost ruined my life and it kind of did ruin my life um and now it's like legal in multiple states so it'd be a fun story when i have like grandkids to be like yeah you know grandpa um, I mean, that was like the initial like troublemaking part. Like I wasn't, I wasn't stealing stuff. I wasn't lighting stuff on fire. I wasn't like assaulting people. I was just like, I liked weed. My friends liked weed. I figured out that I could like buy it here and sell it there and make money. Right. And so like my origin story

of like being an entrepreneur started with like candy and weed did the same thing in high school. I was like, oh, my mom could go to Costco and get like a pack of starburst for five bucks i'm gonna sell each one for like eight bucks and so i got in trouble because like johnny's mom called the principal that like 60 of his lunch money went to like dan's candy backpack so like all my trouble has always been like entrepreneurial it's just like i see a market there and i have products or services i can sell to people that they want and they want any i just happened to pick one like weed that like wasn't necessarily legal. So that was like the origin story. And so, yeah, I got in a bunch of trouble, got expelled, was like trying to figure out my life, was fortunate enough to be the first kid in my program to get admitted back into my public school system, went to a small university and was fortunate enough to have a sister in New York who

was kind of building her own career in venture capital and made a few introductions. And I got an internship in New York and was fortunate enough to kind of go there. And I knew if I got my foot in the door, I would, you know, I would kind of kick the door down. I just needed to be, you know, get the initial foot in. And that was just an interesting process because most of my internship class was all like, you know, Yale, Harvard, Princeton, Brown, like it was all, I was the only non Ivy league kid. I went to a school called Indiana university of Pennsylvania in the middle of nowhere in Pennsylvania. Right. So they're like, you got to go to a different school. So, you know, went to the university of South Carolina, ended up finishing up my undergrad

into my MBA there, then went back up to New York after school and started working on Wall Street. And it was there to about like mid-2015 and got introduced to a guy named Brock Pierce, who's kind of a guy that's been in crypto for quite some time. He just ran for president, which is kind of funny. And yeah, he was working at a firm called Blockchain Capital,

and they were kind of one of the first investment funds in the space that were looking at not only protocol investments, but also venture investments. And it was kind of brought in as an analyst to look at the venture side of our business, looking at early stage companies and kind of the infrastructure that this ecosystem would need to evolve. And so I was there for about a year and a half and was fortunate enough to get involved on this ICO project called GEAR, which is a green energy and renewables token. And the advisory board was like Larry King, like the Larry King, Stan Barty, who runs a company called Forbes Manhattan, it's like a multi-billion dollar merchant bank in Canada. And Jim Rogers, who's kind of like a Wall Street veteran that's run multiple books and run one of the most successful funds of all time. And luckily was able to get them involved in this project really early on,

they all put in like a million, two, three, and then like six weeks walked away with like five, 10, 15. So they're like, they all just made like, you know, a couple million bucks in the span of a few weeks. And we're like, I want in on crypto. What do I need to do? And so I was like, I could kind of bring them into blockchain capital or was like, well, I kind of want to do things in a different way. Right. So that was the origin of Hanum Capital Management, which is a $25 million fund we raised in 2016, and then raised another $75 million in 2017 on behalf of three LPs, Jim, Larry, and Stan.

And then I put into the first couple of million of my own capital. It's kind of like, you know, this is all I have, right? So if things go wrong, you know, it was kind of a way to get them on board. They love to see that though. Yeah, the investors want to see that. You have to see. The investors want to see that. They see this like young, I was 24, 25 at the time. And they're like, this young kid is going to take 5, 10, 15 million bucks from each one of us and invest it into this

like magic internet money. Like we want to know what's going on. And so the vehicle that we started with was Tandem Capital Management, which is a venture specific fund. And we were looking at early stage companies in crypto. So not necessarily like buying, selling and trading crypto, but like looking at early stage investments. Long story short, that's how I got involved with Zenledger was from an investment perspective. And like we kind of talked about earlier on, I was using spreadsheets. I was trying to track my stuff on like block explorers and handwritten notes. And it was just a nightmare. So I was like, I need this solution.

And the team, Pat and Brian and Drew, kind of nightmare. So I was like, I need this solution. And, and the team, uh, Pat and Brian, uh, and drew kind of the, the co-founders all had very extensive activity. Brian was at Microsoft for like 25 years, had sold his last business for I think $2.3 billion, had seven, six or seven exits. Uh, Pat was, you know, uh, Air Force, uh, grad, um, uh, Chicago with MBA, ran around multiple business lines at Amazon. Um, essentially it's just like, uh, the, the kind of 10 things we look at from Booth MBA, ran multiple business lines at Amazon.

Essentially, it's just like the kind of 10 things we look at from an investment perspective. Went in to make an investment at Zenlender. Fast forward to about 2019, and one of the co-founders, Drew Nordstrom, and if that last name sounds familiar, his family owns Nordstrom's. His uncle had gotten sick, and he wanted to spend more time kind of dealing with his family office to make sure that the wealth went from his generation to the next. had gotten sick and he wanted to spend more time uh uh kind of dealing with like his family office to make sure that the wealth went from his generation to the next and so they were looking for a coo to kind of jump in or a president coo to jump in and as long as i really enjoyed investing

into crypto i kind of felt like i wasn't really building anything i'll say all right well money's going from here to there and it's increasing right and it's fun right and once you make that first x amount of dollars whatever that like number is for you it's like my life changed and then you realize like it hasn't really i just i have more money than i did before and i was like well was this like missing hole in my heart that like i want to fill and it was like i want to go build something like i believe in this industry i've been investing in this industry personally and professionally but i haven't really like added value outside of just capital and capital is is value. But like at some point, capital becomes abundant and that value add gets decreased. So long story short, had already been very familiar with the team.

They were looking for someone to step in. And I was like, well, sounds like a great opportunity. I see this business growing to a billion dollar business, which was kind of rare to say from a 2017 when most things were just like copy paste ICO nonsense. And ended up joining the team in 2019 as the chief operating officer. And so, yeah, long story short, not an accountant, not a tax pro, just a guy that's, you know, trying to figure out his life one day at a time and currently working on Zellinger. I think that applies to all of us. I mean, I would imagine it's looking at

your background, your opportunity, what are your unique experiences that give you leverage or value that some people don't have and and so a lot of stuff that i saw on wall street and all the stuff that i saw on venture like allowed me to have a kind of a unique lens and i think that's the the fun part about my days is that i like a full-time investor and a full-time operator and there's not that many people in this space that can do both or are doing both they're typically one or the other they're either investing full-time or operating full-time And so the leverages that I have from both of those, like a lot of our partnerships on the Zellinger side come from my portfolio companies. A lot of our portfolio companies come from like this outreach and the cast, the wide net that we talked about earlier on the Zellinger side. So the nice thing is that I get to work in crypto full time and there's a

lot of synergies in like meaty middle of that Venn diagram between the investing side of my life and the operating side. It's a really incredible story, right? Because I think most people's lives would have probably been ruined at that point. Right. And I mean, it was it was close to being like, it goes into the story. And maybe we'll link in the show notes, or if you just type in like Forbes, Dan Hannum'll pop up but I mean I was close to like having a lot more of my life like really messed up so I was going into my lap yeah well went there but was supposed to go to a different jail that literally was across the street from a prison and so I was originally sentenced about six years and was supposed to literally go to this jail on my 18th birthday. Like my president was like walking across the street into prison. That was like the plan, right? I'm going to court my last court date because I had multiple court dates because I got in trouble multiple times from

like, fortunately enough, the last court date that I went to, there's this program called beta, which was a kind of like a last chance program, right? And there was 12 kids, 12 bunks. And it was like a year and a half program that like you went through different stages. And if you completed it, they would kind of reduce your sentence and be like, you are now kind of like, okay, to go back into the real world. northern virginia down to southern virginia and going to this like juvenile facility that's across the street from the prison i got to stay at home and go to this program and was fortunate enough that something clicked in my head that was like this is like my like i got arrested so many times right this is your last chance we're taking away your car keys i just went and bought another car you know so it was like it was a weird situation because like my mom couldn't ground me because i had my own apartment my mom couldn't like take away my car keys or my cell phone because like they were both in my name so it was like it was a weird situation being but anyway so that was

like you know you could I could have woken up a day earlier or a day later and the kid may have not fought the guard and I would have went down to this thing and served six years instead of a year and a half and wouldn't have been able to go back to high school and wouldn't have been able to go to this college and if I didn't go to college I wouldn't have gotten an internship like so I was fortunate enough to like have you know a last I wouldn't say second chance probably like my 50th chance but you know it clicked when it needed to last one that counts yeah well it's fortunate like it's a funny story to look back on because i wouldn't be in the same position uh that i am now without like going through that and like the experiences and the just like the gratitude that you have for

life right and i think that's something that i've unfortunately seen over and over in crypto is people that have done exceedingly well for themselves that are miserable they're they have so much wealth and they hate life right and it's like i've been in a position where i slept on concrete for a year and a half i've been in a position where i couldn't look out at like the stars at night i couldn't go to the bathroom without someone like giving me approval i couldn't like go shower when i wanted to right and it seems so crazy but like have you ever been in that position? Like it sucks. Like it's not fun. Right. So it's like, I love that I can wake up and work on crypto full-time as a passion. I wait, I like, I love that I can hop on a podcast with you and then like go grab

lunch. Like, you know, so I think that, that like experience has led to a lot of gratitude, which has led to like, you know, a happier life than, than if I just wouldn't focus on just on the wealth. Absolutely love it. And maybe you wouldn't even accomplish as much as you have, if it hadn't have happened. A hundred percent. No. I mean, the way that I look at it is like, I would have kept doing what I was doing and I just would have gotten caught after my 18th birthday. And I wouldn't have been a juvenile. I would have been an adult. And I would have got to send this to like 15 or or 20 years and there's no like second chance because you're only an adult so like it's it's weird to look back right because like there's always a what ifs what

could have been what should have been like if i would have done this if i wouldn't have done that if i wouldn't have made that deal or didn't sell it to that guy who then told this guy who then told that guy who then told the cops like there's a million what i set up like literally the first probably six months of me being locked up was all those what ifs. Should have done this, should have done that, should have had this guy do it for me, like a million different things, right? But I am who I am today through that experience. And it's something that like that Forbes article was super valuable to me because it allowed me for the first time to not be afraid of that experience. And that was kind of like my cover for a while, right? Was like, go to Wall Street, work street work at big banks make a shitload of money have this like really paper and credentialized thing

because i was trying to make up for like i'm this knucklehead kid who doesn't know what he's doing yeah and so it was like a big thing for me to be like i am both i'm the kid that fucked up and i'm also the kid that's done some like cool shit after after the fact so it was it was cool to me to be able to like get that full story out and not have to hide it in my back pocket and hope that someone was going to find it. I kind of announced that that was my thing. And once you own your own story, then it allows you to just move forward. Absolutely love it. But before we, I know we got to get concluded pretty soon, but I've had this question over and over again.

What about someone who did start in crypto a few years ago and didn't ever file taxes? Yeah, great question. I mean, we see that a lot. This year, the average net new purchase is purchasing three to four years for their tax reports with us. And that's the average, right? So there's obviously outliers on either end, but the majority of people are now starting to catch up, right? And they didn't file in 17, they didn't file in 18, they didn't file in 19, they didn't file in 20, and they now need to go back and amend. And so one of the kind of unique parts of Zenledger and one that you've used is our tax pro team. And so having an actual tax professional or a tax attorney that's going to kind of sit down

with you, make sure everything's reconciled and actually file your accounts or amend your returns for you is a really big value add if you haven't filed. And so I would say one thing is make sure that you file from the beginning to the end. If you file a 2021, you're like, well, I'm clean now, but you had activity in 1918, 17, 16, like they're going to be like, well, how'd you get 10 ETH to start with? How'd you get five ETH to start with? Right. So like, if you're going to like come clean, like come clean, don't like half come clean, like go back, amend and make sure that you're clean moving forward. And as we talked about today, a lot of these things can have impact. So if you

don't report your 2017 acquisition data and you bought all this Bitcoin or ETH, and then in 2020, you sold it all for NFTs and we don't have, you bought it for X, we have to say you bought it for zero, which is going to inflate your capital gains. So that acquisition data is super important to have. The item that we get asked about all the time is like, well, should I have a spreadsheet or like a notebook of all my transactions? And it's like, no, you just need to know like what from a high level, what did you use? And obviously there's individuals that have things that probably should be documented. If you have private sales, if you have like safe notes or staff notes, if you have things that aren't like

public, like you need to document that. But for the vast majority of people, it all happened on centralized exchanges or on their wallets. And so the key is, okay, between 2017 and 2020, I use FTX, Coinbase, Binance, I use a Ledger, a Trezor, and a MetaMask. As long as you know the core sources and you get those imported, the software is going to do a lot of the pairing and matching for you. You may need to look at a few things to make sure that it's looking right, but in general, we'll do a lot of like the hard work for you. So it should be easy to get that activity together. And then the only last item that I'd say on that is that old activity is super important for this current year. We have a lot of people that just want 21 tax reports,

but you need that 17, 18, 19, because we need to track the cost, track your holding period, track your gain or loss, track the fees that occurred between, you know, between your account. So yeah, I wouldn't be afraid. The only way I'd be afraid is if last year you checked that you've never interacted with crypto and the answer is yes. That's probably something you're going to need like a tax attorney to review because that's like, it's kind of tax fraud, which is not good. But if you checked yes, and you kind of filed it, just maybe not incorrect, like completely, like there's, there's ways to get that handled and rectified. And we have those kinds of those resources on staff where you can work with like a registered agent and someone that can actually like walk you through the whole process for you.

Awesome. So where can everybody follow you and then check out Zenlight Draft to this conversation? Sure. Yeah. So I'm, I'm pretty active on Twitter. D Hanum, D H A N N U M eight. I'll have, you know, maybe we'll put in the show notes or tweet out about the, the, uh, episode when it comes out. Um, and then Zen Ledger is www.zenledger.io. Uh, our Twitter account is Zen Ledger IO on Twitter, on, uh, on Twitter. Um, and then we'll, you know, what we're trying to do a bunch of podcasts. And, and, uh, we just had, I was talking to Scott before did like a live show with ph and Phantom Network today. We'll have a live stream with AVAX and their team tonight, or like this afternoon. So just trying to add a lot of value and context so you can go through your journey. And obviously, if you know, whatever we said resonates, you want to give us a try, we'd love, you know, we'd love to earn your business if we can. Yeah. And the blog and educational content is really top notch as well. Like you said, you're doing a lot more than just trying to get people to sign up. I just think there's so much confusion and you guys are helping clarify it from the very top end. So that's really useful. Yeah, man. I mean, we're trying to, right?

Like we want you to be able to degen and ape into whatever you want and know that at the, you know, throughout the year and at the end of the year that you can get your tax reports easily, accurately, and be in and out. We are not here to be a part of the ecosystem that makes you have to pay more or wait longer or whatever. It's like, we want you to be able to do whatever you want and just know that you can look at your portfolio and your taxes throughout the year and when you need your reports. So obviously, pretty but think what we're what we're building is is a pretty integral part of crypto and um you know and we'll continue to build for the ecosystem so as we talked about earlier like the pace never ends so there's always going to be some like some new thing that we may not support uh as much as we can so if you ever have trouble like dm me call our support team email our support team they're available 12 hours a day, seven days a week via email, chat, and email.

So if you need help, if you just have questions, you know, how do I import this? I imported that. It's not reconciling, whatever. Like give us a call, chat with us. You know, we're here to help. Yeah. And the next conversation, we'll talk about what happens if you're not an American, but that's a whole other rabbit hole.

Depends on where you live. Well, thank you so much for taking the time. You have an incredibly inspirational story and I love what you guys are doing over there. And all I can say to everybody is get your house in order and take this very seriously, right? Absolutely, Scott.

Well, I appreciate you having me on. I'll connect with you offline and maybe we can get a coupon code put together for the podcast listeners and things like that. And yeah, always happy to connect with you. So appreciate you having this on. Thanks so much.