A federal court in Texas has ruled that the U.S. Treasury exceeded its authority by sanctioning the decentralized crypto mixer Tornado Cash, causing a significant regulatory setback. This follows a similar defeat in November when the U.S. Fifth Circuit Court found the Treasury had overreached by targeting immutable smart contracts.
A filing from the U.S. District Court for the Western District of Texas determined that Tornado Cash’s immutable smart contracts cannot be classified as “property” under the International Emergency Economic Powers Act (IEEPA), and noted that these smart contracts —being autonomous and unchangeable— are incapable of ownership, therefore limiting the government’s ability to regulate open-source blockchain protocols.
Following the news, Tornado Cash’s native coin, TORN, has surged over 200%, reaching $25 before settling at $17.1, according to data from CoinMarketCap. A similar breakout was witnessed in November of last year:
The crypto community cheered the decision as another win for the industry. The other win is related to Ross William Ulbricht, the founder of the controversial dark web marketplace Silk Road, who was pardoned by US President Donald Trump a day after taking office in the White House.
Roman Storm Slams Prosecutors Over Tornado Cash Charges
But it seems the Department of Justice (DOJ) has dismissed the ruling as irrelevant, according to recent documents. Tornado Cash developer Roman Storm took it to X to express how much this case has affected software developers, especially those building privacy protocols:
The charges against me threaten to criminalize software development itself. If successful, the implications could extend far beyond the crypto industry, impacting every software developer. I face up to 45 years in prison on charges including operating an unlicensed money-transmitting business, conspiracy to commit money laundering, and sanctions evasion.
How The Tornado Cash Sanctions Affected Blockchain Privacy Protocols
Tornado Cash is one of the most popular privacy protocols on Ethereum, allowing users to conduct transactions without any trace in the blockchain.
In August 2022, the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash and its associated addresses, listing them on the Specially Designated Nationals (SDN) list, thereby prohibiting U.S. persons from interacting with the protocol.
Shortly after, a key Tornado Cash developer, Alexey Pertsev, was arrested in Amsterdam, later convicted of money laundering in May. The conviction created a chilling effect on innovation in privacy-enhancing protocols, raising fears among open-source contributors about legal repercussions for their work.
Through time, more malicious actors exploited the protocol, such as North Korea’s Lazarus Group, which reportedly laundered $455 million in stolen crypto through the platform.
