Bitcoin is a digital currency, and a digital payment system. It was created by Satoshi Nakamoto (中本哲史) in 2008. The fact that the currency is entirely digital is not the only thing that is mind-triggering, but it's also decentralized and not associated with any bank or nation whatsoever. Bitcoin is a 'peer-to-peer'-system which means that the Bitcoin-users can transact without an intermediary. However, all transactions are recorded in a public distributed ledger named "The Block Chain".
The U.S. Treasury has, due to these circumstances, decided to categorize Bitcoin as a decentralized virtual currency. Bitcoins in itself is created as reward for 'payment processing work' where the users offers their computing power to verify and record payments into a public ledger. Since it is a currency, Bitcoins can be exchanged into other currencies or exchanged for products or services.
To claim that Bitcoin is the "currency of the Internet" cannot be considered as false statement. Even if almost all currencies in the world goes through the Internet as some point, there is no currency, other than Bitcoin, that was created through the Internet and completely relies on it.
"A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees."