The Era of Encrypted AI Agents Has Arrived: How x402 Rewrites Financial and Tax Logic

Based on the logic and characteristics of x402, this paper analyzes the challenges it poses to traditional financial and tax logic and proposes financial and tax solutions for x402.

Author: FinTax

introduction

The rapid development of artificial intelligence and autonomous systems is reshaping the internet economy, but one of the major obstacles to achieving fully autonomous AI systems is the lack of payment systems that enable AI agents to operate without human intervention. In May 2025, Coinbase launched x402, allowing APIs and AI agents to seamlessly transact, promoting a more efficient, frictionless, and scalable digital economy. In October, x402 adoption exploded, processing nearly 500,000 transactions between October 14th and 20th, a 10,780% increase compared to the previous four weeks, and facilitating over 932,000 transactions between October 21st and 27th, a 34,300% increase, demonstrating its continued growth momentum.

The x402 framework, with its seamless, sophisticated, and open characteristics, presents new challenges to traditional fiscal and tax logic. Tax authorities urgently need to transform their tax collection and management models, utilize new tax collection and management tools, and strengthen international cooperation to effectively manage taxes on transactions under x402. This paper analyzes the challenges that x402 poses to traditional fiscal and tax logic based on its logic and characteristics, and proposes fiscal and tax solutions specifically for x402.

1. x402 Overview

x402 is an open payment protocol created by Coinbase that embeds payment functionality directly into the web architecture and re-enables the HTTP 402 (Payment Required) status code to achieve an internet-native, machine-friendly transaction model.

1.1 x402 framework

Like the well-known HTTP 404 (Not Found), HTTP 402 is also a code for internet request and response interactions. When the HTTP standard was initially developed, the designers anticipated that paid resource access might become a significant part of the internet and reserved the HTTP 402 status code for future payment mechanisms. The idea is that servers can respond to requests by stating "payment is required to provide this resource." In today's era of rapid automation and artificial intelligence, HTTP 402, a code forgotten for over thirty years, has sparked a new wave of interest in the field of cryptographic AI.

Based on the HTTP 402 status code, x402 forms a simple and efficient payment framework. The overall process is as follows: The buyer requests resources from the server → [HTTP 402 Response] If payment is required, the server returns an HTTP 402 status code with payment instructions → [Crypto-signature Authorization] The buyer prepares and submits the payment payload → [On-chain Settlement] The server uses the x402 coordinator's /verify and /settle endpoints to verify and settle the payment → If the payment is valid, the server provides the requested content. x402 makes the payment process as natural as loading a webpage.

1.2 Advantages and Risks of x402

x402 is seamless, sophisticated, and open. Compared to traditional online payment methods, x402 improves user convenience by connecting payment and resource delivery, eliminating the need for human intervention, reducing transaction costs, and enabling micropayments and AI-driven autonomous transactions. Furthermore, x402 supports any stablecoin, digital asset, or blockchain, offering exceptional flexibility.

x402 maintains native web compatibility and is easily integrated into any HTTP-based service. Video streaming services can leverage x402 to charge per second of content viewed, replacing traditional subscription-based monetization models. Trading AI can retrieve real-time stock market data for $0.02 per request. News websites and research platforms can charge ordinary readers $0.25 per article, allowing pay-as-you-go access instead of a mandatory monthly subscription. x402 provides a payment alternative, offering a completely new toolkit for monetizing online services.

x402 is still in its early stages and is being gradually developed into a complete ecosystem. At the same time, the security risks associated with x402's rapid expansion are also noteworthy. Some argue that the x402 token suffers from issues such as excessive developer privileges and signature replay vulnerabilities, allowing attackers to potentially exploit old authorizations to steal funds from wallets. The surge in illicit cross-chain crypto activity also poses significant challenges to crime fighting and tax tracking.

2. x402's Challenge to Traditional Fiscal and Tax Logic

Traditional online payments rely on external systems such as credit cards, bank networks, or platform-specific payment processors. These systems are cumbersome, costly, geographically limited, and require multiple layers of manual authorization, making them unsuitable for AI-driven transactions. x402 eliminates these obstacles by embedding itself in a web architecture, offering on-demand payment, instant transaction completion, and AI-native tokenization (allowing AI agents and human users to make dynamic payments without prior approval or API keys). These features, surpassing traditional payment methods, bring advantages to x402 while also posing new challenges to traditional financial and tax logic.

2.1 The absence of a trustworthy third party in seamless transactions

Traditional payment channels typically employ an account model, requiring a certain level of trust between transacting parties through the involvement of regulated financial institutions. Intermediaries such as banks or payment service providers become key nodes in fund clearing and information recording. x402, however, reduces these intermediaries through on-chain peer-to-peer settlement, weakening the long-standing influence of intermediaries.

The existing tax system relies heavily on intermediaries as trusted compliance nodes. On the one hand, intermediaries undertake some reporting obligations, such as banks providing cash flow records based on KYC and payment processing institutions reporting merchant settlement data. On the other hand, intermediaries assist in tax tracking by tracing taxable events through identity verification.

Because of the isolation of third-party intermediaries, the x402 model loses standardized financial records such as bank statements and payment processing agency ledgers as verifiable evidence. In x402, the only objective record is the transaction hash on the blockchain. Although the blockchain is public, transparent, and immutable, the lack of mandatory identity binding and transaction reporting obligations, coupled with the technical complexity of smart contract structures and transaction paths, significantly raises the bar for tax authorities to identify taxable times and reconstruct the true transaction chain. Therefore, tax declarations under x402 primarily rely on taxpayer self-declaration, supplemented by limited on-chain analysis and risk screening, which to some extent increases the difficulty for tax authorities to identify concealed income and undeclared earnings.

2.2 Fragmentation Risks Arising from Micropayments and Autonomous Machine Transactions

x402 supports micropayments and AI-driven autonomous transactions, potentially involving multiple blockchains and asset types, further highlighting the fragmentation of tax transactions. Most jurisdictions treat each asset disposal as a taxable event; even with high-frequency API calls, each x402-based payment will form an independent on-chain transaction and may be considered a separate taxable event. Furthermore, x402 may lead to the separation of tax evidence regarding transaction timing, blockchain, and asset type, further fragmenting tax evidence on top of the fragmentation of tax transactions. Without adjusting existing taxation logic, x402 could exponentially increase the number of taxable events and significantly increase the technical complexity of tax administration.

2.3 The Tax Identification Challenge of Multi-Chain and Multi-Asset Structures

x402 supports any stablecoin, digital asset, or blockchain. x402's openness to various blockchains and crypto assets amplifies the challenges that blockchains and crypto assets pose to traditional tax logic. These challenges manifest specifically in tax jurisdiction issues arising from borderless transactions and tax tracking issues related to payment anonymity.

Regarding tax jurisdiction in borderless transactions, the location principle is a crucial basis for determining the taxpayer's tax payment location and tax jurisdiction within the existing tax system. However, multi-chain settlements under x402 involve multiple locations of economic activity, which may lead to the inability to identify the tax payment location. This makes it difficult to determine the tax attribution of transactions, potentially resulting in tax overlaps and tax vacuums.

Regarding tax tracking issues under payment anonymity, the anonymity under x402 is not merely encrypted anonymity, but rather a structured and automated anonymity generated based on multi-chain, programmable, and decentralized settlement standards. x402's AI-driven routing, self-custodial identity layer, and off-chain metadata storage, among other factors, collectively strengthen information privacy protection, weakening the ability of tax authorities to obtain complete transaction information through traditional financial intermediaries and centralized platforms, and posing a substantial challenge to tax collection and management models centered on third-party reporting.

3. Financial and tax solutions for x402

To address the challenges posed by x402, tax administration needs to keep pace with x402 and implement effective regulation in response to its seamless, granular, and open nature.

3.1 New Leverage Point for Obtaining Tax Information

The x402 standard simplifies the payment process and weakens the pivotal role of traditional intermediaries such as banks and payment institutions in the tax information chain. To maintain the availability and reliability of tax information, tax authorities need to establish new information "anchors" and trust mechanisms within the x402 system.

One possible approach is to embed standardized tax metadata into x402, integrating tax oversight into the seamless structure of x402. This would require x402 payment requests and payment proofs to include structured fields such as the merchant's VAT number, invoice number, and payer's tax ID hash, ensuring the reliability and traceability of tax information and establishing a foothold for taxpayer identification.

Furthermore, from the perspective of keeping the x402 core protocol lightweight, externalized tax information acquisition paths can be explored: without changing the core settlement logic, structured tax data can be carried by auxiliary files or parallel data channels, and encrypted and associated with specific x402 transactions through hash values, thereby extending the tax information function in a "sidecar" manner.

3.2 New Approaches to Taxable Event Management

Regarding the management of taxable events, in cases where x402 may lead to a significant increase in the number of taxable events, tax authorities need to consider adjusting the existing tax collection and management model and gradually introducing tax collection and management tools that are compatible with it.

Regarding tax collection and administration models, given the highly fragmented nature of taxable events, continuing to tax on a transaction-by-transaction basis would lead to excessively high compliance and management costs. Tax authorities could explore net settlement or periodic batch tax collection models, aggregating taxable events generated in micro-payment scenarios on a monthly or quarterly basis. Specifically, a tax settlement layer could be designed above the x402 payment layer to aggregate and classify original transaction events according to dimensions such as tax jurisdiction and tax type, calculating the net taxable amount for each tax period. Compared to transaction-by-transaction reporting, this model is expected to reduce the reporting burden on taxpayers and tax authorities, and lower collection and administration costs, while ensuring tax neutrality and fairness.

In terms of tax administration tools, the role of data analysis tools such as artificial intelligence can be further leveraged to automate the identification and risk monitoring of high-frequency, fragmented transactions. On the one hand, machine learning technology can be used to cluster and classify different transaction patterns, assisting tax authorities in understanding new taxable behaviors under X402; on the other hand, segments that may constitute taxable events can be automatically extracted from continuous transaction flows and pre-filled tax reports can be generated for random checks and reviews by tax officials.

3.3 Strengthen international cooperation to form new rules

Regarding the coordination of tax jurisdiction, given the highly cross-border and de-territorial nature of x402 transactions, disagreements can easily arise among jurisdictions regarding the understanding of tax ownership and the application of rules. To reduce double taxation and tax vacuums, it is necessary to strengthen communication and cooperation through international organizations and bilateral and multilateral arrangements to establish a set of basic principles for tax jurisdiction and conflict resolution mechanisms applicable to x402 scenarios. This would provide a unified framework for tax jurisdiction of x402 transactions, clearly defining tax attribution while respecting differences in national tax systems. Simultaneously, given the fragmentation of tax data, it is necessary to explore the establishment of cross-border tax information sharing arrangements related to x402, supporting cross-border tracking and reconciliation while complying with legal confidentiality and data protection requirements.

For targeted tax administration based on x402, the key lies in fully understanding its technical logic and, based on this, appropriately transforming its programmable elements into regulatory tools. To achieve a balance between payment innovation and tax administration, an ideal approach is to integrate some tax identification, declaration, and information recording functions into the x402 structure using standardized interfaces or modules. This would ensure that payment processes, business responses, and tax collection are technically as seamless as possible, while reserving space for embedding tax compliance at the protocol layer.

4. Conclusion

x402 is creating a new paradigm for internet-native payments. Its seamless, precise, and open characteristics are rewriting traditional financial and tax logic, but it also brings many challenges such as opaque financial and tax information and fragmented tax data. Tax authorities urgently need to keep pace with industry development and proactively deploy a new AI-driven tax collection and compliance system based on x402 to ensure tax security.

Disclaimer: As a blockchain information platform, the articles published on this site represent only the personal views of the authors and guests and do not reflect the position of Web3Caff. The information contained in the articles is for reference only and does not constitute any investment advice or offer. Please comply with the relevant laws and regulations of your country or region.