Tornado Cash Available Soon? Court Ruling Overturns Sanctions

A landmark court ruling overturns sanctions against Tornado Cash, raising the possibility that the cryptocurrency mixing service may soon be available again, and reigniting the debate over privacy and regulation in the digital asset space.

The United States Court of Appeals for the Fifth Circuit ruled that the U.S. Treasury Department overstepped its authority when it sanctioned Tornado Cash’s immutable smart contracts in 2022. The court determined that these specific smart contracts, due to their decentralized and unchangeable nature, did not constitute “property” under the law, a key requirement for sanctions.

The Treasury’s Office of Foreign Assets Control (OFAC) originally imposed sanctions on Tornado Cash, alleging its use by North Korean hackers for money laundering. These sanctions effectively prohibited U.S. persons from interacting with the platform. However, the Fifth Circuit’s decision reversed this, arguing that the immutable nature of the smart contracts made them incapable of being owned or controlled, and therefore not subject to government sanctions.

ConsenSys lawyer Bill Hughes explained the technical basis for the ruling. He highlighted the “trusted setup ceremony” that created the smart contracts, involving over a thousand volunteers and rendering the code permanently unalterable. 

This meant no single entity “owned” the code, and therefore, the government could not sanction it as property. Hughes also pointed out the ineffectiveness of the sanctions, noting that the smart contracts continued operating even after the OFAC designation, allowing anyone, including sanctioned entities, to use them.

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The court also dismissed OFAC’s argument that the smart contracts represented “services,” emphasizing the absence of human involvement in their operation. Instead, the court viewed them as tools, further solidifying its decision to overturn the sanctions.

The ruling, however, did not offer a blanket reprieve for Tornado Cash. The court clarified that other aspects of the platform, unrelated to the specific immutable smart contracts in question, could still be subject to sanctions.

Coinbase, which played a significant role in challenging the sanctions, lauded the decision. Paul Grewal, Coinbase’s Chief Legal Officer, hailed it as a “historic win for crypto and liberty,” emphasizing the government’s inability to sanction open-source code. 

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Coinbase CEO Brian Armstrong echoed this sentiment, expressing pride in the outcome and reaffirming the company’s commitment to defending individual freedom.

The crypto community reacted with widespread enthusiasm. Uniswap CEO Hayden Adams celebrated the victory of “immutable smart contracts” over the Treasury Department. Jake Chervinsky, CLO of Valiant Fund, described the ruling as a “stunning victory,” underscoring the legal precedent set regarding the nature of smart contracts. 

The market responded dramatically, with Tornado Cash’s TORN token surging by as much as 500%.

While the ruling clarifies the legal status of immutable smart contracts, it also raised complex questions about the future of decentralized technologies and the balance between privacy and regulation. The decision’s long-term impact on the DeFi landscape remains to be seen, but it undoubtedly marks a significant moment in the ongoing evolution of crypto regulation.

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YONA GUSHIKEN

Yona brings a decade of experience covering gaming, tech, and blockchain news. As one of the few women in crypto journalism, her mission is to demystify complex technical subjects for a wider audience. Her work blends professional insight with engaging narratives, aiming to educate and entertain.

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Yona has no crypto positions and holds no crypto assets. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Daily is the official publication of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.

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