Bitcoin is gaining a lot of popularity nowadays, but the IRS Internal Revenue Service has issued a statement pointing out that it is not a currency but more like a property. The IRS issues its first significant guidance on the virtual coin this Tuesday.

On the notice issued by the Internal Revenue Service, it states that Bitcoin may function as a coin and paper currency and is possible to utilize as a means to purchase services and goods, no country accepts it as "legal tender".

"Virtual currency is treated as property for U.S. federal tax purposes," the notice said. "General tax principles that apply to property transactions apply to transactions using virtual currency."

What's the difference between a Bitcoin and U.S. Dollar? Bitcoin is an unregulated peer-to-peer digital currency, while dollars, or Federal Reserved Notes, are currencies issued by the Federal reserved Bank. Bitcoin is available entirely in digital format, while dollars are printed and minted by the U.S. Bureau of engraving and Printing.

Bitcoin started out from a 2008 paper by a group of programmers under the name Satoshi Nakamoto. Bitcoin is consider a technological breakthrough that allows sales and purchases even with the absence of a trusted third party, like mastercard or visa. Bitcoins are generated through complex computers that accounts transactions and secures it against double-spending through the same currency.

Investors of Bitcoins will also be treated similarly to a normal stock broker. This means that Bitcoins that are held for more than a year and sold would also be entitled for lesser tax rates such as those that are applicable to capital gains. Investors who also had losses can subtract capital losses from their capital gains.

"The Internal Revenue Service's guidance today provides clarity for taxpayers who want to ensure that they're doing the right thing and playing by the rules when utilizing Bitcoin and other digital currencies," Senator Thomas Carper, a Delaware Democrat, said in a statement.

Federal Reserve chairman Ben Bernanke told Congress that bitcoins and its ilk "may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system".