Yes, you will recognize a gain or loss if you pay someone with virtual currency for providing you with a service.
For federal tax purposes, virtual currency is treated as property. When you use virtual currency to pay for a service, you are effectively exchanging property. The gain or loss is determined by the difference between the fair market value of the services received and your adjusted basis in the virtual currency exchanged. If the virtual currency is held as a capital asset, the gain or loss will be capital in nature. If it is not a capital asset, the gain or loss will be ordinary. This is consistent with the general tax principles applicable to property transactions.
Sources:
Notice 2014-21
Rev. Rul. 2019-24
