Yes, interest (sometimes called yield or rewards) paid on cryptocurrency in deposit accounts is confusing. I don't think the problem is with BlockFi. Rather, it hasn't been clear whether and how such interest payments are reportable to the IRS. So, BlockFi didn't know what to do. As you may be aware, BlockFi was recently informed by the SEC that their interest account is a security, which meant that they had sold unregistered secruities. The SEC imposed a $100MM fine. In any case, all of the companies that provide interest on cryptocurrency deposits to US customers have been filing 1099-MISC forms showing the interest. It is not just BlockFi. Presumably the SEC has informed the companies that the interest payments should be reported in this manner. Unfortunately, the IRS has not yet explained to taxpayers how the 1099-MISC income should be reported and TurboTax hasn't yet caught up. Clearly, you need to report the income somewhere and I agree with you that is isn't employment income. One other point of clarification: selling cryptocurrency is different from receiving income. When you sell cryptocurrency you will have a capital gain or loss, either short-term or long-term depending on your holding period. You would report this the same way as the sale of stock or other capital assets. The IRS considers cryptocurrency to be “property," which means is is taxed in the same way as any other assets like stocks.
