A US District Court for the Western District of Texas has lifted sanctions against decentralized crypto mixing platform Tornado Cash, which was previously blacklisted by the US Treasury Department’s Office of Foreign Assets Control (OFAC) in 2022 Tornado Cash was used by North Korea’s Lazarus Group to launder stolen cryptocurrencies. Following the ruling, the price of Tornado Cash’s native token, TORN, rose more than 140% from $9.5 to over $23.
The central issue in this case was Tornado Cash’s core technology, which consists of smart contracts that cannot be changed or controlled by any individual or organization. The court ruled that these contracts were not property under the International Emergency Economic Powers Act (IEEPA), the law that OFAC uses to impose sanctions. Because smart contracts are immutable and decentralized, they are considered “non-ownerable” and therefore cannot be subject to the same restrictions that apply to individuals or companies.
The court made it clear that the government’s actions in attempting to regulate decentralized technologies had exceeded the limits of its authority. The ruling emphasized that the Treasury Department does not have the authority under IEEPA to enforce sanctions against technologies such as Tornado Cash, particularly when those technologies operate autonomously and without human intervention.
While the court recognized the Treasury Department’s broad powers, it rejected the argument that Tornado Cash constituted a service that could be sanctioned, noting that the platform’s operations were governed entirely by codes, not people. Tornado Cash’s defense argued that the Treasury Department effectively created new laws without congressional approval, a stance with which the court agreed. This ruling has significant implications for the future of blockchain technologies and how they should be regulated.
The decision was celebrated by privacy advocates, who see it as a victory for decentralization and financial privacy. The ruling also had a positive impact on other privacy-focused cryptocurrencies such as Monero and Zcash, whose prices rose in response to the ruling. Privacy-focused platforms in the Web3 space welcomed the court’s decision and stressed the importance of protecting user privacy in a rapidly evolving digital economy.
While this ruling represents a victory for Tornado Cash and its supporters, there are signs that the US government may seek to appeal the decision and potentially refer the matter to the Supreme Court. However, some members of the crypto community, including Coinbase’s chief legal officer, have called on the government to accept the court’s decision, highlighting the importance of protecting privacy in the digital age. The case highlights the challenges authorities face in regulating decentralized technologies and raises important questions about the future of cryptocurrency regulation.
