The EU is proposing a database of cyrptocurrency users with their personal details and wallet addresses Getty

The European Commission wants to take the anonymity away from virtual currencies by demanding users register on a database so they can be tracked. The proposal would provide the EU with a record containing the real-world identities of people using cryptocurrencies as well as the addresses of the virtual wallets where their money is held.

Cryptocurrencies like Bitcoin can't be traced easily, making them a popular choice for cyber-criminals for funding illegal activities. Ransomware attacks, for example, often demand payments in Bitcoin because it leaves no identifiable paper trail to their source.

Softpedia reports that the EU wants to introduce a database of cryptocurrency users as part of the reform of its Anti-Money Laundering Directive (AMLD), which will be broadened to include so-called virtual currencies.

Governments have struggled to incorporate cryptocurrency into current laws because it isn't generally recognised as actual money by financial institutions. Only this week, a Miami judge threw out a case against a man accused of illegally laundering $1,500 of Bitcoin after ruling that his actions didn't breach current laws around money laundering.

The new AMLD draft will not only seek to make virtual currencies recognised as money, but would also see the EU create a database that links cryptocurrencies to their users, effectively ending anonymity. This would be created and managed by the intelligence services of member states, although Softpedia reports that users would be able to register their details on their own "as a sign of good faith".

At the same time, providers of digital currency wallets – which are essentially the cryptocurrency equivalent of a bank account – would be required to make European users register with their real information, which would then be accessible to financial intelligence services. The EU hopes that by doing so it will discourage the use of virtual currencies in crimes involving human trafficking, black market trading and extortion to name but a few, or at least make it possible to trace those responsible.

The European Parliament is expected to vote on the proposal before the end of 2016.