U.S. Court Overturns Sanctions on Tornado Cash, Cryptocurrency Token Price Soars 140%

A U.S. District Court for the Western District of Texas has overturned sanctions against the decentralized crypto-mixing platform Tornado Cash, which was previously blacklisted by the U.S. Treasury's Office of Foreign Assets Control (OFAC) in 2022. The sanctions had been imposed over allegations that Tornado Cash was used by North Korea’s Lazarus Group to launder stolen cryptocurrency. Following the ruling, the price of Tornado Cash’s native token, TORN, surged by more than 140%, increasing from $9.5 to over $23.

The central issue in the case was Tornado Cash’s core technology, which consists of smart contracts that cannot be altered or controlled by any individual or entity. The court ruled that these contracts are not property under the International Emergency Economic Powers Act (IEEPA), which is the law used by OFAC to impose sanctions. Since the smart contracts are immutable and decentralized, they are considered "non-ownable," and therefore, cannot be subject to the same restrictions placed on people or businesses.

The court clarified that the government’s actions overstepped the bounds of its authority by attempting to regulate decentralized technologies. The ruling emphasized that the Treasury Department does not have the power to enforce sanctions on technologies like Tornado Cash under the IEEPA, especially when these technologies operate autonomously without human intervention.

While the court acknowledged the Treasury Department's broad powers, it rejected the argument that Tornado Cash constitutes a service that could be sanctioned, pointing out that the platform’s operation is entirely governed by code, not people. Tornado Cash's defense argued that the Treasury had effectively created new laws without congressional approval, a stance that the court agreed with. This ruling has significant implications for the future of blockchain technologies and how they should be regulated.

The decision has been celebrated by privacy advocates, who view it as a victory for decentralization and financial privacy. The ruling has also positively affected other privacy-centric cryptocurrencies, such as Monero and Zcash, whose prices increased in response to the decision. Privacy-focused platforms in the Web3 space have hailed the court’s decision, stressing the importance of protecting user privacy rights in a rapidly evolving digital economy.

While this ruling represents a victory for Tornado Cash and its supporters, there are indications that the U.S. government may seek to appeal the decision, potentially escalating the issue to the Supreme Court. However, some in the crypto community, including Coinbase’s Chief Legal Officer, have urged the government to accept the court’s ruling, highlighting the importance of safeguarding personal privacy in the digital age. The case underscores the challenges authorities face in regulating decentralized technologies and raises important questions about the future of cryptocurrency regulation.