The price of Tornado Cash’s TORN token skyrocketed to a two-year high after a US federal appeals court ruled that the US Treasury Department’s sanctions on the platform were unlawful.
Tornado Cash, a privacy-enhancing tool on the blockchain that makes use of immutable smart contract technology to facilitate anonymous crypto transactions.
The platform was sanctioned in 2022 by the US Treasury’s Office of Foreign Assets Control (OFAC). The US Treasury’s Office of Foreign Assets Control (OFAC) sanctioned it in 2022.
The judgment
On Nov. 26, the US Court of Appeals determined that the Treasury exceeded its authority by sanctioning Tornado Cash’s immutable smart contracts. These contracts are open-source and do not belong any one person or entity. They cannot, therefore, be sanctioned.
Court highlighted an important 2020 event known as the “trusted setup ceremony,” where over 1,000 participants contributed cryptographic data to finalize Tornado Cash’s parameters. This made the smart contracts unchangeable and eliminated any administrative or update control. Tornado Cash’s community was given the power to govern the Tornado Cash network through TORN tokens.
These contracts do not fall under the International Emergency Economic Powers Act’s definition of a service or a property. They also pointed out that the smart contracts have continued to operate despite the OFAC’s sanction.
OFAC will not be able to sanction such individuals until Congress changes the law in order to take into account new technologies, like those used for crypto-mixing.
The judges 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 they cannot be blocked under IEEPA, and OFAC overstepped its congressionally defined authority.”
After the decision, CryptoSlate data shows TORN surged from around $18 to an all-time high of $40 in just two days. The token is still 96% lower than its previous high, which was $436 in February 2021.
Crypto Community Celebrates
It was a widely-celebrated decision within the cryptocommunity. Industry leaders called it a milestone victory for privacy and decentralized technologies.
Coinbase’s Chief Legal Officer, Paul Grewal, emphasized that this ruling protects open-source software from unjust sanctions. Paul Grewal noted that, while it is necessary to address illicit activities, imposing blanket restrictions on decentralized protocols goes beyond legal limits.
The statement was made by:
“No one wants criminals to use crypto protocols, but blocking open source technology entirely because a small portion of users are bad actors is not what Congress authorized. These sanctions stretched Treasury’s authority beyond recognition, and the Fifth Circuit agreed.”
Bill Hughes, Consensys’ senior counsel and director of global regulatory matters, explained that the judgment does not mean that the rest of Tornado Cash is also out of bounds for Treasury/OFAC. The issue in this case was smart contracts without an admin key.
Hughes, added
“[This is] a good win. One which the Supreme Court would be unlikely to reverse. Another case where Loper Bright helped because the court wasn’t required to defer to a permissible reading by the agency.”
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