Why Europe is preparing to crack down on Bitcoin anonymity

European government agencies have announced new laws for the spring to ensure that transactions and users of virtual currency platforms such as Bitcoin can be verifiably traced.

The reason? Terrorism. The operation is designed to make it more difficult for terrorists to move money or other assets between them and their backers.

"We want to improve monitoring of the financial means used by these terrorists, from cash and art to virtual currencies and anonymous prepaid cards, while at the same time avoiding unnecessary obstacles to payment functions and financial markets for ordinary and law-abiding people," said European Commission Vice-President Varghese Dombrovskis.

What does this mean in practice? The new law, by referencing the EU’s Anti-Money Laundering Directive, forces virtual currency trading platforms to exercise due control when customers convert virtual currencies into real money.

All of the proposals will come into effect by the middle of this year, with the aim of having them passed by the EU and become law by the end of 2017.

In theory, it will no longer be possible to own Bitcoin anonymously.

But many bitcoin and similar virtual currency exchanges are conducted outside the EU, making the legislation difficult to reach. Once cash is converted into cryptocurrencies, its very nature makes it difficult to track the final transaction.

However, according to the report: "The extent and scope of the use of this technology by terrorist organizations and their supporters is currently unknown and needs to be further understood." Although services such as Bitcoin pose a potential threat, they pose little threat to more traditional methods of transferring money.

Furthermore, the terrorist attacks in Paris last November made it imperative that the European Commission take action.