Is PayPal considered a digital asset?

The "Digital Asset" question is specifically referring to cryptocurrency and non-fungible tokens (NFT). If you receive money digitally (in an account), but it is standard currency (such as US Dollars), it is not considered a "digital asset" for the purposes of this question. See the Form 1040 Instructions, Digital Asset section for the formal definition.

As for where it goes on your tax form, there are several things to consider. First, you need to decide if the "income" is taxable/reportable at all. Second, you need to decide the nature of the income as it relates to your situation.

Is it taxable?

If you are getting money for work that you do, it is generally considered taxable. However, your question mentions "rewards." Often that word is used for rebates or discounts that you get for spending. For example, if you get a "cash back" reward for a purchase that you made, it is not considered income; instead, it is just considered a discounted price of a purchase. However, if you are taking surveys and receiving a cash value that is not tied to a particular purchase, then it is probably considered taxable income. One way you can tell is if the company that is paying you says that they will send you a 1099 form if your earnings get over $600 in a year, you know that you are receiving income. Even if you do not reach $600 and do not receive a 1099 form, you are still supposed to declare the income you did receive and pay tax on it.

Is the income generated by a business that you own? Are you self-employed?

You probably don't think of yourself as a self-employed business owner whose business is filling out surveys. However, when you get income for work that you did that didn't come from a traditional employee paycheck, you need to decide if the activity you are doing to generate the income would be considered a business by the IRS, or if it would be considered a hobby ("activity not for profit"). This can be a tricky question. The IRS has listed nine criteria for a business to help you decide.

A business has to pay extra self-employment tax if your business income ends up being over $400, but you get to deduct business expenses. If it is an activity not for profit, there is no self-employment tax or expense deduction. You probably don't have any expenses related to taking surveys and probably didn't earn very much, so unless you are making unusually large amounts of money for taking surveys, it probably won't make any difference to your bottom line which one you choose.

If you decide it is business income, you'll need to fill out a Schedule C. If you decide to call it activity not for profit income, it goes on Schedule 1, Line 8j. You asked about Schedule 1, Line 8z, but that is for some specific, unusual income circumstances and would not be used for this.

Conclusion

If I were you and I wanted to declare this income on my tax return, if the total ended up being less than $400, I would certainly call it hobby income and put it on Schedule 1, Line 8j. If I was consistently earning more than $600 and receiving 1099 forms for this activity each year, I might be safer calling it business income and filling out a Schedule C.

"Digital assets" refers to crypto. PayPal, AFAIK, doesn't use crypto and instead you're receiving US dollars. This doesn't really matter, the intention of this checkbox is to mostly call attention to the fact that even if you receive something in "crypto" it is still income, and subject to tax.

Also on 1040 schedule 1 under Other Income, line 8, is doing surveys considered an activity not for profit or would it be considered just other income with explanation on line 8z?

This depends on the nature of your activity. If you're completing surveys with the purpose of deriving income and for profit then it is not an activity "not for profit".