Virtual currency system

Definition
A virtual currency system is a system in which transactions take place using virtual currency. There are two types of virtual currency systems:


 * A "closed-flow" virtual currency system does not produce taxable income because a virtual currency can be used only to purchase virtual goods or services. An example of a closed-flow transaction is the purchase of items to use within an online game.
 * An "open-flow" virtual currency system may produce taxable income because a virtual currency can be used as payment for real goods or services or readily exchanged for government-issued currency, such as U.S. dollars.