Crypto Industry Cheers as Federal Court Invalidates Tornado Cash Sanctions

A federal appeals court has overturned U.S. sanctions imposed on Tornado Cash, a service designed to anonymize cryptocurrency transactions. This landmark decision challenges the authority of the U.S. Department of the Treasury, which had previously sanctioned the protocol. The ruling asserts that the Treasury overstepped its legal boundaries by targeting open-source, immutable smart contracts that cannot be owned or controlled. Court Rules Smart Contracts Are Not “Property” The ruling highlights that while the Treasury can take action against “property,” the smart contracts central to Tornado Cash do not meet this definition. Their immutable and open-source nature makes them unownable, removing them from the scope of sanctions under federal law. The court emphasized that the Treasury’s actions stretched its authority beyond recognition. This decision is expected to restore U.S. persons' ability to use the protocol for privacy-protecting purposes. The case has drawn significant celebration from legal experts. Coinbase’s Chief Legal Officer, Paul Grewal, expressed that the ruling is a pivotal moment for privacy and freedom. Grewal noted that blocking technology entirely due to misuse by a minority of bad actors was not authorized by Congress. Instead, he argued that the sanctions represented government overreach, which the court has now corrected. Grewal emphasized that the ruling is a historic win for crypto and all who care about defending liberty. https://twitter.com/iampaulgrewal/status/1861549058797772874   Legal Experts Praise the Ruling Legal professionals have joined the conversation, underscoring the decision’s significance. Bill Hughes, a lawyer at ConsenSys, explained that under existing regulations, the sanctioned smart contracts cannot be classified as property and are thus outside the Treasury's jurisdiction. Hughes noted that this specific ruling pertains to smart contracts without administrative keys, leaving other aspects of Tornado Cash open to potential Treasury scrutiny. He also suggested the Supreme Court would be unlikely to reverse the decision, further solidifying its impact. Hughes acknowledged Coinbase's role in challenging the sanctions, emphasizing their influence in shaping this legal outcome. He stated that this case aligns with broader judicial efforts to limit excessive agency discretion. Tornado Cash's Previous Controversy In June, a Terra Classic community member accused the Terraport team of negligence after stolen funds from a prior exploit were routed through the mixer. Additionally, in September, the exploiter responsible for the high-profile hack of the India-based exchange WazirX transferred 2,600 ETH, valued at approximately $6.5 million, to Tornado Cash. The hacker executed this transaction through 27 separate on-chain transfers. Following the initial test, the exploiter proceeded to move the remaining funds in multiple batches of 100 ETH each, directing them to the privacy-focused mixing platform.