Landmark Ruling Overturns U.S. Sanctions on Tornado Cash

In a groundbreaking decision, the U.S. Court of Appeals for the Fifth Circuit has overturned sanctions imposed on Tornado Cash, a cryptocurrency mixing service.
This marks a significant victory for the platform, which had faced accusations from the U.S. Treasury’s Office of Foreign Asset Control (OFAC) of facilitating illicit activities tied to North Korean hackers.
The ruling found flaws in the original reasoning behind the sanctions, with the court stating that Tornado Cash’s smart contracts do not meet the legal definition of “property.” These contracts, being immutable and decentralized, cannot be owned or controlled, challenging OFAC’s justification for labeling them as a security threat.
Tornado Cash allows users to enhance their privacy by blending their digital assets with others, obscuring their origins. While this has legitimate uses, its association with laundering stolen funds raised concerns among regulators, culminating in the initial sanctions imposed by OFAC.
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The court’s decision, however, emphasizes that the platform’s smart contracts are neither services nor property, undermining the legal basis for the sanctions. The judgment has been remanded for further review in accordance with the appellate court’s findings.
The decision could have far-reaching implications for decentralized protocols, setting a legal precedent that challenges how regulators approach immutable technologies. As the case continues to unfold, it highlights the ongoing tension between innovation and regulatory oversight in the crypto space.