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

Introduction

The rapid development of artificial intelligence and autonomous systems is reshaping the internet economy, but one of the main 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 transact seamlessly, 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, showing no signs of slowing down.

1. x402 Overview

x402 is an open payment protocol created by Coinbase that embeds payment functionality directly into the web structure, re-enabling 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 would become a crucial 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 before this resource can be provided." 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. Its overall process is as follows: The buyer requests a resource 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 characterized by its seamless, refined, and open nature. Compared to traditional online payment models, x402 improves user payment convenience by seamlessly integrating payment and resource delivery, eliminating the need for manual intervention, reducing transaction costs, and enabling micropayments and AI-driven autonomous transactions. Simultaneously, 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 based on the number of seconds of content viewed, replacing the traditional subscription-based revenue model. 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 offers a payment alternative, providing a completely new toolkit for monetizing online services. x402 is still in its early stages and is being gradually developed into a complete ecosystem. However, 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 poses a significant threat to crime fighting and tax tracking. 2. The Challenges of x402 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 to operate, costly, geographically restricted, and require multiple layers of manual authorization, making them unsuitable for AI-driven transactions. x402 eliminates these obstacles by embedding itself in the web architecture to provide 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). While these features, which surpass traditional payment methods, bring advantages to x402, they also pose new challenges to traditional fiscal and tax logic. 2.1 The Absence of Trustworthy Third Parties in Seamless Transactions Traditional payment channels typically employ an account model, requiring both parties to establish a certain level of trust with the participation of regulated financial institutions. Intermediaries such as banks or payment service providers become key nodes in fund clearing and information recording. X402, through on-chain peer-to-peer settlement, reduces intermediate steps in transactions, weakening the long-standing power of intermediaries. The existing tax system heavily relies on intermediaries as trusted compliance nodes. On the one hand, intermediaries bear some reporting obligations, such as banks providing KYC-based cash flow records and payment processing institutions reporting merchant settlement data; on the other hand, intermediaries assist in tax tracking, tracing taxable events through identity verification. The x402 model, due to its isolation from third-party intermediaries, 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 problem of tax events. Most jurisdictions treat each asset disposal as a taxable event. Even with high-frequency API calls, each payment based on x402 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 such as transaction timing, blockchain, and asset type, further fragmenting tax evidence on top of the fragmentation of tax events. Without adjusting existing taxation logic, x402 could lead to a significant increase in the number of taxable events and substantially increase the technical difficulty of tax collection and administration. 2.3 The Tax Identification Challenge of Multi-Chain and Multi-Asset Transactions 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 under borderless transactions and tax tracking issues under payment anonymity. Regarding tax jurisdiction issues under borderless transactions, the location principle is a crucial basis for determining the taxpayer's tax payment location and tax jurisdiction in the existing tax system. However, multi-chain settlement under x402 involves multiple economic activity locations, which may lead to the inability to identify the tax payment location. This makes it difficult to delineate the tax attribution of transactions, potentially resulting in tax overlap 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. Tax and Financial Solutions for x402 To address the challenges posed by x402, tax administration needs to keep pace with its development and implement effective oversight, taking advantage of its seamless, detailed, and open nature. 3.1 New Pivot Points for Obtaining Tax Information x402 simplifies payment processes 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 "anchor points" 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 receipts 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 maintaining the lightweight nature of the x402 core protocol, externalized tax information acquisition paths can be explored: without altering the core settlement logic, structured tax data can be carried by supplementary files or parallel data channels, and encrypted and associated with specific x402 transactions using hash values, thereby extending tax information functionality in a "sidecar" manner. 3.2 New Approaches to Taxable Event Management Regarding the management of taxable events, given the potential for a significant increase in the number of taxable events due to x402, tax authorities need to consider adjusting the existing tax collection and management model and gradually introducing appropriate collection and management tools. In terms of the collection and management model, 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 can explore net settlement or periodic batch tax collection models, summarizing taxable events generated in micro-payment scenarios on a monthly or quarterly basis. Specifically, a tax settlement layer can be designed above the x402 payment layer to aggregate and classify original transaction events according to dimensions such as tax jurisdiction and tax type, and calculate the net taxable amount for each tax period. Compared with item-by-item 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. Regarding collection and administration tools, the role of data analysis tools such as artificial intelligence can be further leveraged, enabling them to automatically identify and monitor risks associated with 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 Strengthening 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 form 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 transactions under x402, while respecting differences in national tax systems, to clearly define tax attribution. 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. The key to targeted tax collection and administration under the x402 system lies in fully understanding its technical logic and, based on that, appropriately transforming its programmable elements into regulatory tools. To achieve a balance between payment innovation and tax collection, an ideal approach is to integrate some tax identification, declaration, and information recording functions into the x402 architecture using standardized interfaces or modules. This would ensure seamless technical integration between payment processes, business responses, and tax collection, 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 have rewritten traditional tax logic, but they have also brought numerous challenges, such as opaque tax information and fragmented tax data. Tax authorities urgently need to keep pace with industry development and proactively deploy an AI-driven x402 tax collection and compliance system to ensure tax security.