You know that paper with a president on it is valuable if you drop it and someone picks it up.
But in recent years, with the advent of cryptocurrencies, there's nothing to physically drop at all. Just digits on a blockchain. Why are those digits valuable? And come to think of it, why is the paper valuable?
Those questions have been on the mind of the IRS, which has made some decisions.
Digital currencies, like bitcoin, are not real currency, also known as fiat, because "they are not the coin and paper money of the United States or a foreign country and are not digitally issued by a government's central bank."
Notice the last clause that makes the issuer (a government) the key characteristic, even if the currency is issued digitally.
In other words, like cryptocurrency, your dollars may only be digital, but, unlike cryptocurrency, it's money. But it can still be taxed.
