A U.S. federal appeals court has invalidated sanctions against Tornado Cash, a crypto-mixing service, ruling that its immutable smart contracts cannot be classified as property.
The Fifth Circuit Court of Appeals’ decision is a significant win for decentralization and privacy advocates, but it has reignited discussions on regulating blockchain tools often linked to illegal activities.
The Treasury’s OFAC imposed sanctions on Tornado Cash in 2022, accusing it of facilitating money laundering by groups like North Korea’s Lazarus Group.
However, the court determined that the Ethereum-based smart contracts, which function autonomously, fall outside OFAC’s jurisdiction under the IEEPA, as they cannot be owned or restricted.
The court acknowledged that sanctions could block certain users but emphasized that Tornado Cash’s decentralized structure makes it impossible to fully bar access.
Coinbase’s Chief Legal Officer, Paul Grewal, hailed the ruling as a “historic win” for crypto and individual freedoms, arguing that targeting open-source technology due to misuse is government overreach. Coinbase and others had challenged the sanctions, calling them unfair and misdirected.
Tornado Cash’s token, TORN, surged nearly 400% after the ruling, reflecting renewed confidence among supporters of privacy-focused blockchain technologies.
Moreover, this decision underscores the complexities of applying existing legal frameworks to decentralized systems. Critics fear it could encourage criminal misuse of blockchain tools, while supporters argue that technology itself shouldn’t be penalized for its application.
This landmark ruling may set a precedent for distinguishing between the tools and their misuse, sparking further regulatory scrutiny. As lawmakers seek a balance between innovation and security, the case highlights the challenges of overseeing decentralized technologies in an evolving blockchain landscape.
