A virtual currency system is a system in which transactions take place using virtual currency. There are three types of virtual currency systems: * In a "closed-flow" virtual currency system 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. Virtual tools amassed by players can be traded in a game for other in-game assets or to advance to higher play levels, but they hold no value outside of the game and cannot be cashed out for dollars or other government-issued currencies. It does not produce taxable income. * In a "hybrid system" one or more flows between the virtual currency and real dollars or goods and services are closed. For example, participants can purchase v