US Appeals Court Strikes Down Tornado Cash Sanctions, Token Value Soars

Court Ruling Lifts Sanctions on Tornado Cash, Sparking Surge in Token Value

A major legal victory for the cryptocurrency community was handed down on Tuesday as the 5th US Circuit Court of Appeals overturned the US Treasury Department’s sanctions on the crypto-mixer Tornado Cash. The ruling marked a significant shift in the ongoing debate over privacy tools and the extent of government powers in regulating blockchain technology. The court’s decision ruled that the technology behind Tornado Cash, specifically the software used to obscure digital asset ownership, is not subject to US sanctions.

Tornado Cash, which operates on the Ethereum blockchain, had been sanctioned in 2022 by the US Treasury’s Office of Foreign Assets Control (OFAC) after it was linked to North Korean hackers laundering hundreds of millions of dollars. The legal case against the sanctions gained widespread attention, as it touched on key issues related to privacy, government authority, and the intersection of law and blockchain technology.

Following the ruling, the price of Tornado Cash’s governance token, TORN, soared by a staggering 435%, reaching approximately $19.06 per token by 11:00 pm ET.

Tornado Cash: A Tool for Privacy or a Gateway for Criminal Activity?

At the heart of the ruling was the issue of whether Tornado Cash’s smart contracts, which facilitate anonymous cryptocurrency transactions, can be considered “property” that the US government has the right to sanction. Tornado Cash had been accused of enabling criminal activities, including the laundering of over $455 million by a North Korean hacking group. Despite these concerns, the court ruled that the government lacked the legal basis to target the technology itself.

Circuit Judge Don Willett, writing for the majority, pointed out that while the government had valid concerns regarding the misuse of Tornado Cash by foreign entities, it was not within the scope of US law to sanction the underlying software. He noted that the sanctions applied by the Treasury Department focused on “property,” but Tornado Cash’s smart contracts—immutable lines of code—do not fall under this classification.

The ruling effectively means that Tornado Cash is free from the sanctions imposed by the Treasury Department, but it does not absolve individuals or groups who use the platform for illicit purposes. The decision addresses the broader question of whether software, even when misused by bad actors, can be treated the same as physical assets in a sanctions regime.

Government Concerns Over Cybercrime Persist

While the ruling is a win for privacy advocates and the broader crypto community, it also highlights ongoing concerns over the misuse of cryptocurrency technologies by bad actors. Tornado Cash’s involvement in facilitating the laundering of significant sums of money by cybercriminals, particularly the North Korean hacking group Lazarus, had been a driving force behind the Treasury’s decision to sanction the platform in the first place.

The US government’s actions were largely focused on cracking down on entities and technologies that facilitate cybercrime and money laundering. Tornado Cash, with its ability to hide the origin and destination of digital assets, became a target for regulators concerned about the growing use of cryptocurrency for illicit activities.

Despite the court’s ruling, Judge Willett acknowledged the government’s concerns, suggesting that Congress might need to update the laws surrounding technology and financial tools. He noted that the current legal framework was enacted during the Carter Administration, long before the rise of blockchain technology, and may need to be adjusted to account for modern digital technologies.

“Perhaps Congress will update (the law), enacted during the Carter Administration, to target modern technologies like crypto-mixing software,” Willett said.

Tornado Cash’s Market Recovery After Sanctions

After the US Treasury sanctioned Tornado Cash, its usage dropped significantly, as many users and businesses sought to avoid potential legal trouble. The sanctions, which effectively froze Tornado Cash’s operations in the US, had a major impact on its user base, leading to a sharp decline in transactions.

However, the 2024 legal victory has breathed new life into the platform and its associated token. Following the appeals court ruling, the Tornado Cash governance token, TORN, saw a massive surge in value, rising by more than 400% in a matter of hours. This surge highlights the significance of the court’s ruling in restoring confidence in the platform and its technology.

The decision to lift the sanctions could pave the way for Tornado Cash to regain its former status as a prominent privacy tool within the cryptocurrency ecosystem. While it remains to be seen how the platform will operate moving forward, the ruling has set a precedent for how similar privacy tools may be treated under US law.

What’s Next for Tornado Cash and Privacy Tools?

The court’s decision is likely to have far-reaching implications for other privacy-focused cryptocurrency platforms. With governments worldwide tightening their grip on cryptocurrency regulation, it’s clear that the battle between privacy advocates and regulatory bodies is far from over.

For Tornado Cash, the ruling marks a turning point. While the court’s decision does not absolve the platform from scrutiny or misuse by bad actors, it reinforces the notion that the technology behind blockchain platforms cannot be sanctioned in the same way as traditional financial assets.

As Tornado Cash moves forward, it will need to find ways to balance its privacy-oriented features with the need for regulatory compliance. The ruling also sets the stage for other privacy tools to challenge similar sanctions or legal actions in the future, potentially reshaping the landscape of crypto regulation.