U.S. Appeals Court Overturns Tornado Cash Sanctions, Declares Software Beyond Treasury’s Reach

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As a seasoned analyst with over two decades of experience in the ever-evolving tech and finance sectors, I find myself deeply intrigued by this recent ruling regarding Tornado Cash. The court’s decision to invalidate OFAC’s sanctions against the immutable smart contracts is indeed a landmark victory for privacy rights in the crypto world.

The decision made by the three-judge panel stated that Tornado Cash’s unchangeable computer programs, which facilitate privacy for Ethereum transactions, are not considered as “property” according to the International Emergency Economic Powers Act (IEEPA). Judge Don Willett highlighted that the law allows the Treasury Department to regulate property, but not technology.

In its decision, the court expressed regret over the slow progress of legislative adjustments in response to the swift advancements in technology, particularly evident on a global scale, and more so in the United States due to the recurring political stalemate affecting various US administrations. “Maybe Congress will revise the law, which was passed during the Carter Administration, to address contemporary technologies such as crypto-blending software,” said Willett. For now, we rule that Tornado Cash’s unalterable smart contracts…cannot be considered the possession of a foreign national or entity.

OFAC’s Sanctions ‘Overstepped’ Legal Bounds

In August 2022, the Office of Foreign Assets Control (OFAC) imposed sanctions on Tornado Cash, stating its involvement in laundering more than $7 billion worth of cryptocurrency, including funds linked to North Korea’s Lazarus Group. Yet, the court found that these sanctions were unjust as they targeted open-source software instead of the individuals or entities exploiting it improperly.

Six Tornado Cash users, supported by Coinbase, argued that the platform’s smart contracts can’t be owned or controlled, and as a result, it was incorrectly designated as a Specially Designated National (SDN). The court concurred with this argument, stating that the Office of Foreign Assets Control (OFAC) overstepped its authority by targeting Tornado Cash under the International Emergency Economic Powers Act (IEEPA).

Bill Hughes, a senior attorney at Consensys, stated, “Since these smart contracts lack ownership, they cannot be seized according to federal legislation.

As an analyst, I am excited to note that this decision is being hailed as a significant stride towards upholding privacy rights in the cryptocurrency arena. Paul Grewal, Coinbase’s Chief Legal Officer, has termed it a “groundbreaking triumph for cryptocurrencies and freedom.” He further emphasized that this victory underscores the judicial system’s commitment to safeguarding the rights of individuals who use open-source tools prudently.

Brian Armstrong, the CEO of Coinbase, endorsed the decision, arguing that the Treasury’s sanctions overstepped their bounds because they targeted software instead of addressing misuse.

Tornado Cash Token TORN Surges

After the significant court ruling, the governance token for Tornado Cash, TORN, experienced a substantial surge in value, reflecting market faith. Initially trading at approximately $3.6, the token climbed up to nearly $35 – a two-year peak that represented an increase of roughly 870%. By Wednesday morning, according to Brave New Coin’s data, the token had settled around $16.7.

The current price rise is a response to the Fifth Circuit Court’s decision, viewed by many as a significant turning point for the entire cryptocurrency sector. Even with TORN’s contentious past, experts predict that this ruling will boost investor trust in blockchain privacy tools.

Continued Challenges

Despite the recent legal win for Tornado Cash, ongoing examination by regulatory bodies continues. The court recognized that the sanctions in place do not completely prevent usage of the service, as it remains functional and reachable to anyone with an internet connection.

Hughes made it clear that this decision pertains solely to the smart contracts within Tornado Cash; other aspects of its operations might still encounter legal issues.

As a researcher delving into this topic, I’ve noticed that the Treasury Department has remained silent about its plans to challenge the recent ruling. This situation underscores an ongoing tension between regulators and the cryptocurrency sector, as governments grapple with finding a balance between upholding privacy rights and combating criminal activities in the digital currency space.

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2024-11-27 14:38