Virtual currencies are a digital representation of value. This digital value may function as a medium of exchange, a unit of account, or a store of value. A virtual currency has characteristics similar to government-backed paper currency, commodities, and securities. For federal tax purposes, virtual currency is treated as property. Transactions using virtual currency result in recognition of income, expense, gain or loss in the same manner as if government-backed currency were used.
The specific form for reporting virtual currency transactions is the same form that would be used for transactions in U.S. dollars, such as Schedule C for receipts as an independent contractor, Schedule D for sale, exchange, or payment of property, or Schedule E for receipt of rental income or royalties. Income is recognized only when the taxpayer can exercise dominion and control over the virtual currency.
The transaction amount for payment with virtual currency is the market value of the virtual currency in U.S. dollars on the date of receipt. The character of the transaction, whether capital gain (loss) or ordinary gain (loss) depends on whether the virtual currency is a capital asset in the hands of the taxpayer. Securities such as stocks or bonds, and real property are generally classified as capital assets. By contrast, inventory or property held for sale is not a capital asset. 
The following terms have been defined by a recent Revenue Ruling:
Cryptocurrency -- a virtual currency which uses encryption protocols to assure accuracy and to prevent
modification of the value.
Blockchain -- publicly available decentralized ledger which records the transaction value, to serve as a
digital signature to verify value.
Distributed Ledger—The use of separate, independent digital systems to record, share and synchronize each
transaction in multiple places at the same time, with no central data storage.
Hard Fork – A permanent division from the existing distributed ledger.
Airdrop – A means of distributing units of virtual currency to the distributed ledger addresses of several
 Written testimony of J. Christopher Giancaro, Chairman Commodity Futures Trading Commission, before the Senate Banking Committee, Washington, D.C., Feb. 6, 2018. Appendix C of Commodity Future Trading Commission v. McDonnell, 287 F. Supp 3d 213 (2018).  Internal Revenue Notice 2014-21.  Rev. Rul. 2019-24.