Forex traders do on their positions when they realize a gain or loss. So yes.
but what if you earn money in that currency and never exchange it for any other currency just use it for life. the government would literately have to audit your savings account and proclaim that you owe X because your savings went up in value (and im not talking about interest paid by bank, i'm talking about just buying power of underlying currency).
that is no different than owning a gold necklace and government taxing you on it because gold went up in price. I don't think this is happening right now
Holding bitcoin while it goes up in value isn't realizing a gain or loss.
You're taxed on the realized gain (or loss) when you sell the asset.
The same as you are when you convert a currency back into USD.
I don't know what you mean by "use it for life"- yes, you can hold onto Bitcoin (or gold or whatever) and not get taxed, but as long as its sitting under your mattress it doesn't do you any good regardless. There's no way to use the value to get anything else without getting taxed.