A U.S. District Court for the Western District of Texas has reversed sanctions imposed on the decentralised crypto-mixing platform Tornado Cash, blocked by the U.S.
Treasury’s Office of Foreign Assets Control (OFAC) in 2022. Sanctions were enacted following claims that Tornado Cash facilitated the laundering of stolen cryptocurrency by North Korea’s Lazarus Group. In the wake of the recent ruling, Tornado Cash’s native token, TORN, experienced a remarkable surge, climbing over 140% from $9.5 to surpass $23.
The pivotal aspect of the case revolved around the fundamental technology of Tornado Cash, characterised by smart contracts that remain immutable and beyond the control of any single individual or organisation.
A recent court decision determined that these contracts do not qualify as property under the International Emergency Economic Powers Act (IEEPA), the legislation utilised by OFAC to enforce sanctions. The immutability and decentralisation of smart contracts render them “non-ownable,” which means they are not subject to the same restrictions that apply to individuals or businesses.
The court has clarified that the government’s efforts to regulate decentralised technologies have exceeded its legal authority. The ruling highlighted that the Treasury Department lacks the authority to impose sanctions on technologies such as Tornado Cash under the IEEPA, mainly when these technologies function independently without human involvement.
The court recognised the extensive authority of the Treasury Department but dismissed the claim that Tornado Cash qualifies as a service subject to sanctions. It emphasised that the platform functions solely based on code rather than human intervention.
The defence for Tornado Cash contended that the Treasury had essentially enacted new regulations without the necessary approval from Congress, a position that the court found to be valid. The recent ruling carries considerable weight for the future of blockchain technologies and the regulatory frameworks that may govern them.
The decision has garnered praise from privacy advocates, who see it as a significant win for decentralisation and financial privacy. The recent ruling has favourably impacted other privacy-focused cryptocurrencies, including Monero and Zcash, as their prices increased following the announcement.
The recent court ruling has been met with widespread approval in a significant development for privacy-focused platforms within the Web3 sector. Advocates emphasise the critical need to safeguard user privacy rights as the digital economy continues to evolve at a swift pace.
The recent ruling marks a significant win for Tornado Cash and its advocates; however, there are signs that the U.S. government could pursue an appeal, which may elevate the matter to the Supreme Court. In a notable development within the cryptocurrency sector, voices from the community, including the Chief Legal Officer of Coinbase, have called on the government to acknowledge the recent court ruling.
They emphasise the critical need to protect personal privacy in today’s digital landscape. This case highlights the difficulties that authorities encounter in managing decentralised technologies and prompts significant enquiries regarding the future landscape of cryptocurrency regulation.
