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The crypto sector is celebrating the US appeal court’s overturning of Tornado Cash sanctions. The decision quashes a lower court ruling, which is a significant win for privacy developers seeking clarity for products like crypto mixer Tornado Cash.
According to the ruling, the US Fifth Circuit Court asked the sanctions imposed on Tornado Cash to be lifted, claiming the Treasury had overstepped. The court argued that Tornado Cash’s smart contracts were not “property” and that there was no way they could be sanctioned.
Crypto Mixer Tornado Cash Linked To Lazarus Group
The Tuesday ruling noted that the Treasury Department’s Office of Foreign Assets Control (OFAC) definition of “any property,” referring to the crypto mixer Tornado cash, remained beyond the agency’s regulatory reach since smart contracts were neither own-able nor services or traditional contracts.
The three-judge panels stated, “We hold that Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not the ‘property’ of a foreign national or entity, meaning (1) they cannot be blocked under IEEPA, and (2) OFAC overstepped its congressionally defined authority.”
In August 2022, the OFAC declared Tornado Cash a sanctioned entity and barred US citizens and companies from engaging in financial interactions with it. The agency went further to link Tornado Cash to Pyongyang’s nuclear arms program. The Treasury asserted that crypto mixer Tornado Cash facilitated illegal activities like money laundering orchestrated by groups like the notorious hacker North Korea’s Lazarus Group.
OFAC Overstepped Its Congressionally Defined Authority
The breaking of the news regarding the lifting of Tornado cash sanctions gave a boost to the governance token, TORN’s value adding at least $3.6 to reach a new high of close to $35, which is an 870$ boost. As per data from CoinGecko, TORN had dropped from the $20 piece level it held in mid-2022 when the developers faced legal challenges and has been trading below $8, seeing that it was literally blocked on most crypto exchanges.
The Tuesday ruling follows the decision by crypto mixer Tornado Cash user Joseph Van Loon and five other users to sue OFAC, its director Andrea Gacki, and Secretary Janet Yellen in 2022. The plaintiffs stated in their legal suit that the Tornado Cash sanctions were an overreach since Tornado Cash was an entity or software and not an individual.
A district court judge sided with the OFAC in August 2023, stating that there was more to crypto mixer Tornado Cash than just software. The judge averred that the involvement of the developers, founders, and a decentralized autonomous organization (DAO) governing the platform was a reason for his decision. The plaintiffs appealed the ruling, maintaining their argument.
Ruling a Good Win for the Crypto Industry
In their ruling, the US Appeals Court judges stated that despite OFAC’s sanctions, Tornado Cash was still accessible to “anyone with an internet connection.” Commenting on the development, senior counsel at Consensys Bill Hughes wrote on his X handle that the ruling was “a good win […] one which the Supreme Court would be unlikely to reverse.”
Another crypto mogul, Paul Grewal, the Coinbase legal officer, stated that the lifting of the Tornado cash sanctions was “a historic win for crypto and all who cares about defending liberty.” Coinbase supported the lawsuit with some of the platform’s employees filing suits to help reverse the Tornado cash sanctions.
Conclusion
Crypto mixer Tornado Cash is a digital asset privacy program that enables users to deposit different types of cryptocurrencies into a shared pool. Also known as crypto tumbrels or mixers, the service mixes crypto assets from other users, making it hard for anyone to trace the source.
The aim is to enhance the anonymity of crypto, especially Bitcoin/USD pairs that are easily traceable via the public ledgers. The service helps to provide a level of privacy since there is no way of linking a user to a particular transaction. Crypto industry insiders see the ruling as a big win since it reinforces the open-source software idea that states it’s wrong to penalize everyone for the actions of a few bad actors.
