In another somewhat landmark ruling for crypto, The Fifth Circuit Court of Appeals has essentially declared Treasury sanctions against Tornado cash to be both inappropriate and illegal. If I'm being honest it's actually kind of embarrassing that something like this could even get to an appeals court to begin with, but in crypto it is what it is, as they say.
the court found that the Treasury Department’s Office of Foreign Assets Control (OFAC) exceeded its authority when it sanctioned Tornado Cash’s immutable smart contracts.
For anyone wondering how crypto seems to keep getting victory after victory in this landscape, the answer is simple. The government has been constantly and habitually overstepping their authority at every turn, and now that crypto communities have the resources to defend themselves there's a legal war going on between both sides. Not only is crypto winning this war, but they are making the government look like the absolute cronies that they are.
The ruling hinges on a deceptively simple question: can computer code that cannot be modified or controlled be considered “property”? The appellate court’s answer was an emphatic no.
Again this should be obvious to anyone who understands decentralization. The reason why government agencies have been able to get away with these shenanigans for so long is that new technology is often difficult to understand. Crypto is one of the best examples we've had of this in the last hundred years. There's so much complication and nuance when it comes to blockchain that the bureaucrats have just decided they'll make the rules up as they go. That's not going to fly anymore at this point. Crypto will continue getting landslide victories.
Imagine building a road that anyone can drive on. You've done a good deed and built public infrastructure; good on you, sir. The problem? Now the government wants to sue you because a bank robber used your road to escape justice. Everyone understands how ridiculous this would be out here in the real world using a simple real-life example. The same is true for actual weapons of war. Gun companies can't get sued because they produced the AR-15 used in a mass shooting. That's not a thing that happens and everyone understands why.
However with crypto this is exactly how government agencies act. Under the cover of confusion and technical complexity the administration just decides if they want to prosecute this or that individual for the "crime" of creating public infrastructure that anyone can use. They do this indiscriminately and don't have to answer to anyone.
For example the SEC doesn't even have to take a crypto startup to court to ruin them. All they have to do is send the Wells Notice and 99% of the time no one is going to want to do business with that entity any longer. They can debank whoever they want for any reason and no one can appeal these decisions.
But the court found that since Tornado Cash’s core protocols are “immutable” – meaning they cannot be changed or controlled by anyone – they don’t qualify as property that can be sanctioned under existing law.
This type of thing is going to happen again and again over the coming years. Control is slipping away from the powerful, and the powerful clearly don't like that... but it really doesn't matter. They lose either way. Even in the case of successful court victories it just teaches devs that they need to remain anonymous for their own safety. This should have been known already but we seem to be slow learners.
The implications are significant. The ruling effectively creates a safe harbor for truly decentralized protocols that cannot be modified or controlled. While OFAC can still sanction individuals and companies, it cannot sanction the underlying code itself
Always loves to see another legal win for crypto. However, the drama rages on and there are still many more cases to be heard, even in the case of Tornado Cash privacy service. While sanctions against the code have been deemed illegal, the individual devs themselves still need to be vindicated. I expect that they will, but you never know.
“Mending a statute’s blind spots or smoothing its disruptive effects falls outside our lane.”
