Tornado Cash Triumph: You Can’t Sanction Smart Contracts, Court Declares, TORN Rallies 1,300%

Just when Bitcoin, Solana, meme coins, and top altcoins are flying, a United States court declared that Tornado Cash smart contracts, against allegations by authorities, can’t be sanctioned.

It is a massive boost for Tornado Cash, a crypto mixer that saw its token, TORN, flash crash, and usage shrink to record lows after sanctions in August 2022.

Now, coming as a shot in the arm for the mixer and another endorsement of crypto innovation, the Fifth Circuit Court of Appeals yesterday ruled that the Treasury Department’s sanctions against smart contracts guiding Tornado Cash are illegal.

This ruling is a victory for the burgeoning industry. It should be pivotal, especially for privacy purists and everyone calling for innovation.

The Case Against Tornado Cash: TORN Smart Contracts Are SAFU?

To understand why, we should go back to the last bull cycle in 2021. Then, as crypto prices soared to fresh highs, Tornado Cash emerged as a tool for obfuscating transactions on Ethereum.

Simply put, the tool allowed users to “unlink” their public crypto movements by offering a layer of anonymity.

Given the open nature of crypto transactions, this was necessary.

Unfortunately, Tornado Cash, a public tool built and improved by the community, attracted nefarious agents, mostly hackers and scammers, who wanted to launder stolen money.

Some of them allegedly included hackers acting on behalf of North Korea. The Treasury Department claimed that Tornado Cash had enabled the laundering of hundreds of millions of stolen funds, some from the Ronin Hack, which saw users lose over $600 million.

In an August 2022 release, the Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash’s addresses under the International Emergency Economic Powers Act (IEEPA), pointing to its role in enabling the transaction of illegal activities.

The directive meant United States citizens couldn’t interact with Tornado Cash.

However, as expected, there was an immediate pushback. Coinbase, one of the world’s largest exchanges, filed a lawsuit contesting these charges. In their view, OFAC and the Treasury Department were overstepping their authority.

Coinbase and other blockchain advocates argue that Tornado Cash was an open protocol and that OFAC sanctioned self-executing autonomous contracts that weren’t owned by anyone but belonged to the underlying network, in this case, Ethereum, a public ledger.

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The Court’s Historic Ruling: What Does This Mean for Privacy Coins?

In yesterday’s ruling, which overturned the district court ruling, the presiding judge decisively declared that Tornado Cash’s smart contracts weren’t property and “can’t be owned” since they are autonomous.

Secondly, the court said OFAC was overstepping its mandate by sanctioning open-source and immutable technology. The court said the agency should instead target individuals and entities misusing the protocol for their malicious gains.

The ruling acknowledges that if the government decides to ban mixers like Tornado Cash, it would smother innovation since it is like penalizing encryption.

Encryption and cryptography are foundational to digital security, powering all open-source ledgers, including Bitcoin and Ethereum.