The IRS has spoken: Bitcoins are property, not currency. This was hardly a surprise, but it has some important implication that tells us a lot about what it takes to make a currency work.
For a payments geek, the real lesson from the IRS Bitcoin ruling is that for a currency--or any payment system--to work, its units must be completely fungible. One reason dollars work really well as a currency is that one $20 bill is entirely fungible with another $20 bill. This means that when I pay, I don't have to make a decision about which $20 bill to use (unless I have some idiosyncratic attachment to the crisp ones or the like). It means that when I accept a payment, I don't care which $20 bill I am given, in part because I know that my ability to spend that $20 bill will not depend on which $20 bill it is. If payment were in, say, camels, then it would probably matter a great deal which camel were tendered. Camels aren't fungible. And we know that's not going to make for a very good payment system.
So what does this have to do with Bitcoin?