Huge Victory for Crypto and Privacy, but Risks for Tornado Cash Remain
The cryptoasset industry and privacy advocates are celebrating a major legal victory in the U.S., as sanctions against the so-called crypto-mixer Tornado Cash have been overturned. However, the fight might be far from over.
A U.S. Court of Appeals for the 5th Circuit ruled that the platform, which helps obscure the traces of cryptoasset transactions, cannot be sanctioned by the US Treasury's Office of Foreign Assets Control (OFAC). Per the ruling, "Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not the 'property' of a foreign national or entity," and therefore cannot be blocked under IEEPA (the International Emergency Economic Powers Act). Moreover, the court ruled that OFAC overstepped its "congressionally defined authority."
In 2022, OFAC sanctioned the mixer, claiming that it had facilitated the laundering of more than $7 billion worth of cryptoassets since its creation in 2019. According to the office, this included over $455 million stolen by North Korean hackers from the Lazarus Group.
The mixer operates by receiving transactions, mixing them together, and then transmitting them to their recipients.
However, despite the sanctions prohibiting interactions with Tornado Cash, the platform has continued operating. Meanwhile, in May of this year, one of its developers, Alexey Pertsev, was found guilty of money laundering by a court in the Netherlands and was sentenced to more than five years in prison. Two other developers—Roman Storm and Roman Semenov—were also charged, but only Storm was arrested and is currently awaiting sentencing in the US.
In any case, the cryptoasset industry is celebrating the victory.
‘Historic Win’
"Immutable smart contracts just beat the [T]reasury [D]epartment in court," Hayden Adams, CEO of Uniswap Labs, the developer behind the major decentralized exchange Uniswap, said.
Paul Grewal, Chief Legal Officer at major crypto exchange Coinbase, commented "This is a historic win for crypto and all who care about defending liberty."
"These smart contracts must now be removed from the sanctions list, and US persons will once again be allowed to use this privacy-protecting protocol. Put another way, the government’s overreach will not stand," he added.
Grewal stressed that while no one wants criminals to use crypto protocols, blocking open-source technology entirely "because a small portion of users are bad actors is not what Congress authorized."
"The US legal system is finally acknowledging that decentralized protocols are a new type of infrastructure in the world. Massive W[in]," a popular crypto educator, Cygaar, posted on X.
However, Natalie Smolenski, Senior Fellow at the Bitcoin Policy Institute, warned that while the ruling is good news, "the court also spells out clearly the path that the U.S. Congress could take to make mixers illegal: amending the IEEPA."
"These laws must be abolished if we are to once again become a free society. That is the truth," Smolenski concluded.
In any case, TORN, the native token of the Tornado Cash platform, skyrocketed around 450% after the news was announced. It is a relatively small token, now ranked 655th by market capitalization ($77 million), making it easier to move the price with relatively low transactions.