On November 26, the Fifth Circuit Court of Appeals ruled that the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) overstepped its authority by sanctioning cryptocurrency mixer Tornado Cash's immutable smart contracts. did. The court held that these autonomous smart contracts, which operate without human intervention, cannot be classified as “property” under federal law and are effectively outside the scope of the International Emergency Economic Powers Act (IEEPA). declared.
Cryptocurrency wins big
This ruling reverses OFAC's previous designation of Tornado Cash's smart contract to the Sanctions List, a move that has significant implications for privacy and decentralization within the cryptocurrency industry. The judges emphasized that immutable smart contracts cannot be licensed as property because they are lines of code that are not subject to ownership or control.
Tornado Cash is an open-source decentralized protocol that allows users to increase the privacy of their cryptocurrency transactions on the Ethereum blockchain. It provides a layer of anonymity by pooling transactions and hiding the trace of funds.
In August 2022, OFAC sanctioned Tornado Cash for having been used to launder more than $7 billion worth of cryptocurrencies since its creation in 2019, including funds linked to North Korean hackers. The sanctions marked the first time the US government targeted a decentralized protocol rather than a specific person or entity.
The Fifth Circuit’s decision focuses on the interpretation of “property” under IEEPA. The court concluded that immutable smart contracts (self-executing code that runs autonomously on a blockchain) do not constitute property because they cannot be owned or controlled by any person or entity. This distinction is critical because while IEEPA gives the Treasury the power to regulate or prohibit transactions involving foreign property rights, that power does not extend to autonomous law without property rights.
The court stated that “immutable smart contracts are autonomous, self-executing code that functions without human intervention.” They do not have the attributes of property as traditionally understood under federal law. ”
Crypto industry reaction
Paul Grewal, who assisted Coinbase in its legal challenge to the Treasury Department, hailed the decision as a historic victory for the crypto community. He wrote on X (formerly Twitter): “Privacy wins. Today, the Fifth Circuit Court of Appeals ruled that the U.S. Treasury Department’s sanctions against the Tornado Cash smart contract are unlawful. This is a historic victory for humanity, and Coinbase is proud to help lead the way on this important challenge.”
The Coinbase CLO emphasized the court's recognition that “Congress does not authorize outright blocking of open source technology because some users are bad actors.” He said the sanctions “expand the Treasury Department's powers beyond recognition,” adding that the court's decision corrects this overreach.
Valiant Funds CLO Jake Cherbinski called the ruling an “amazing victory for cryptocurrencies.” He added: “The court found that immutable smart contract protocols are not 'property' subject to sanctions because they cannot be owned,” and revoked OFAC's designation of Tornado Cash in 2022. Decentralization wins. ”
Matt Korba, a lawyer for Ethereum developer ConsenSys, emphasized the importance of the decision to check administrative overreach. “The Fifth Circuit's decision in favor of the plaintiffs who challenged the prior addition of the Tornado Cash smart contract to the list of sanctions under IEEPA is an extraordinary one. A victory, yet another blow to an administrative state acting without modern, direct parliamentary powers.”
Mr. Korba also pointed out that such government measures place an undue burden on those affected, saying, “There are significant costs for those affected to try to rectify it.” This accomplishment would not have been possible without Coin Center, Paul Grewal at Coinbase, and the many minds and wallets that have contributed to this and other similar challenges across the country.”
Uniswap Labs CEO Hayden Adams expressed surprise at the court's decision. Immutable smart contracts just won against the Treasury in court. […] It's incredible how much damage cryptocurrencies are causing in federal courts. ”
At this time, the Treasury Department has not announced whether it will appeal the Fifth Circuit's decision. If the government seeks to further challenge the ruling, the case could go all the way to the Supreme Court.
At the time of writing, Tornado Cash Token (TORN) is trading at $18.08, up 415% in the past 24 hours.
TORN Price Soars Over 400%, 1-Week Chart | Source: TORUSDT on TradingView.com
Featured image created with DALL.E, chart on TradingView.com
