Because of this public transparency, it is very easy for the IRS to link “anonymous” wallets to people. This is because at the beginning of nearly every person’s transaction history is an on-ramp via know-your-customer (KYC) rules that exchanges like Coinbase are required to follow. These exchanges are required to report customers’ activity to the IRS, which gives the agency information about users. From this on-ramp, if the assets are sent to a decentralized wallet provider or non KYC’d exchange, the IRS can follow these transactions and easily associate each new wallet with the person who funded it. If you buy ETH on Coinbase, send to Metamask then bridge to Avalanche, the IRS will associate the Metamask and Avalanche wallet with the KYC’d Coinbase account that funded the wallets, thus revealing the wallets’ owners.
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