Introduction

First traded in 2010, bitcoin is an example of a virtual currency or medium of exchange that is electronically created and stored. A “virtual currency” is defined by the U.S. Department of Treasury as “a medium of exchange that operates like a currency in some environments but does not have all the attributes of real currency.”

While paper money and coins are legal tender, virtual currency does not have that status. Some other names for virtual currency are virtual money, digital money and cryptocurrency.

While virtual currency is often used to purchase virtual goods within a variety of online communities, virtual currency may also be used to purchase physical goods and services. While more than 2,400 different forms of virtual currencies exist, some common ones are bitcoin, peercoin, ripple, and litecoin. Additional information about virtual currency is available on the Internal Revenue Service’s website.

The developer of bitcoin, the first virtual currency, Satoshi Nakamoto, has never come forward and is believed to be a pseudonym for the person or people who authored the first bitcoin white paper and constructed the initial blockchain that powers the virtual money, according to reports.