US court overturns Tornado Cash sanctions: Smart Contract does not constitute sanctionable property

Yesterday, a US court overturned the US Department of the Treasury's Office of Foreign Assets Control (OFAC) sanctions against Tornado Cash, an encryption mixer, emphasizing that its Smart Contract cannot be owned or controlled, seen as a major victory for privacy technology in the encryption field, and laying the foundation for the improvement of future regulatory frameworks.

(Ethereum founder Vitalik generously donated 170,000 ETH to help Tornado Cash mixer developers deal with lawsuits)

Preface: Tornado Cash has gone through ups and downs

As a decentralized mixing platform based on the Ethereum blockchain, Tornado Cash provides users with a service to conceal the source and destination of their encrypted currency transactions, a feature that quickly caught the attention of the US authorities involving concealed financial flows.

In August 2022, the platform was sanctioned by the US Department of the Treasury's Office of Foreign Assets Control (OFAC), accusing it of assisting North Korean hacker group Lazarus in money laundering, involving over $4.55 billion in illegal funds.

In August 2023, the platform's main developer, Alexey Pertsev, was arrested, and in May last year, a Dutch local court ruled that he assisted in laundering $1.2 billion and sentenced him to 64 months in prison.

The court revoked OFAC's sanctions against Tornado Cash.

However, on the 21st, the US District Court in Texas ruled to lift the sanctions imposed by OFAC on Tornado Cash and remove it from the Specially Designated Nationals and Blocked Persons List (SDN):

The judgment of the local court has been revoked, and the case will be returned to the local court for further hearing in accordance with the opinion of this court.

The key to the court's ruling: Smart Contract is not property, OFAC overstepped

It is reported that the core issue of this case is whether OFAC has the right to consider the Smart Contract of Tornado Cash as "property" defined in the International Emergency Economic Powers Act (IEEPA), and in November of last year, the US Court of Appeals ruled that OFAC had exceeded its authority, indicating that the Smart Contract of Tornado Cash is not "property".

The Smart Contract of this platform is immutable code on the blockchain, created through a "trusted setup ceremony" encryption method, which cannot be owned, controlled, or modified by any individual, enabling the software to operate independently.

(Interpreting the Tornado Cash case: the court's crucial ruling on Smart Contract will change the DeFi regulatory landscape)

The ruling pointed out that because Smart Contract is automatically operated and open to all users, sanctions cannot effectively prevent illegal users from using it, and it is not a sanctionable asset.

Recommend updating IEEPA content

In addition, the court also suggested that Congress update the content of IEEPA in its ruling to address emerging technologies such as encryption mixing protocols.

We reject the Ministry of Finance's excessive interpretation of the legislative work of the Congress, which is the responsibility of the Congress and belongs solely to the Congress.

Previously, the definition of 'property' under IEEPA was limited to things that can be owned or controlled, and the immutable nature of Tornado Cash's smart contracts also led to the court's subsequent ruling that OFAC exceeded its jurisdiction.

(Will DeFi be immune to regulation? Tornado Cash lawsuit gains advantage, US court rules OFAC's unauthorized sanctions on Smart Contract)

The Triumph of Privacy and Decentralized Technology

Undoubtedly, this ruling is a significant victory for privacy advocates and supporters of decentralized technology, and is expected to lay the foundation for clearer regulation of smart contracts in the future, protecting financial freedom and user rights.

However, despite Tornado Cash's victory in this case, its main developer Pertsev is still detained on charges of money laundering, sanctions evasion, and operating an unlicensed money transfer business, and could face up to 45 years in prison. His trial is expected to take place on April 14th.

In his tweet yesterday, he emphasized that he was prosecuted for writing open source code for privacy services, which poses a threat to the legitimacy of software development itself.

If these allegations are substantiated, the impact could extend far beyond the encryption industry, causing widespread repercussions for every software developer.

This ruling highlights the limitations of current regulations in dealing with decentralized technologies. With the popularity of blockchain and encryption currency technologies, how to strike a balance between protecting national security and promoting technological innovation, or protecting privacy and preventing illegal activities, will become important issues in the future.

This article The US court overturned the sanctions on Tornado Cash: Smart Contract is not considered sanctionable property first appeared on Chain News ABMedia.