# Virtual Currency & Cryptocurrency ![](/files/jtnZ2jSULZf3TU8eVDBf) ## What is Virtual Currency? The IRS uses the term [“virtual currency”](https://www.irs.gov/pub/irs-drop/n-14-21.pdf) to describe cryptocurrency. (The term is also used for other types of currency used as a medium of exchange, such as digital currency). Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange. Some virtual currencies are convertible, which means that [they have an equivalent value in real currency or act as a substitute for real currency](https://www.irs.gov/pub/irs-drop/rr-19-24.pdf). ## What is Cryptocurrency? [Cryptocurrency is a type of virtual currency](https://www.irs.gov/pub/irs-drop/rr-19-24.pdf) that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain. A transaction involving cryptocurrency that is recorded on a distributed ledger is referred to as an “on-chain” transaction; a transaction that is not recorded on the distributed ledger is referred to as an “off-chain” transaction. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.recap.io/us-tax-guide-for-individuals/cryptocurrency-tax-guide-for-us-individuals/virtual-currency-and-cryptocurrency.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.