- Court agrees existing law doesn't cover smart contracts.
- TORN soars 400% in 24 hours.
- Crypto legal experts caution against reading too much into ruling.
Code is not the same thing as a person or a company. Full stop.
For months, six plaintiffs have been arguing that point in connection with the US Treasury Department’s punishment of Tornado Cash.
Supported by Coinbase and other crypto stalwarts, they contended the Treasury Department erred by sanctioning the crypto mixer for executing transactions by North Korean-linked hackers and other national security threats and criminals.
Now a US court has agreed and delivered the crypto industry an eye-opening legal victory.
‘Immutable smart contracts’
In a 34-page opinion issued on Tuesday, an appeals court in Texas reversed a lower court ruling and said the smart contracts utilised by Tornado Cash to anonymise crypto transactions are not covered by existing law.
The court said the Treasury’s Office of Foreign Assets Control, or OFAC, was wrong to sanction the venture in 2022 and ordered a lower court to grant the plaintiffs’ request for dismissal of the sanctions in part.
“We hold that Tornado Cash’s immutable smart contracts… are not the ‘property’ of a foreign national or entity,” the three-judge panel wrote. “OFAC overstepped its congressionally defined authority.”
In the last 24 hours, TORN, the token associated with Tornado Cash, soared 400%, according to CoinGecko.
Longstanding argument
Crypto privacy advocates said the decision affirmed their longstanding argument that automated smart contracts should be treated differently than developers or DAOs or any other entity managing an anonymising platform like Tornado Cash.
“Incredible win here,” Matt Corva, general counsel at ConsenSys, said on Tuesday.
‘Put another way, the government’s overreach will not stand.’
— Paul Grewal, Coinbase
Paul Grewal, the chief legal officer at Coinbase, hailed the decision as a game changer for blockchain technology.
“These smart contracts must now be removed from the sanctions list and U.S. persons will once again be allowed to use this privacy-protecting protocol,” Grewal wrote on X.
“Put another way, the government’s overreach will not stand.”
Weapons of mass destruction
To be sure, the court recognised the importance of addressing online national security threats.
The judges said it was clear that a North Korean-linked hacker group had laundered $7 billion in illicit proceeds from crypto thefts to fund the development of its weapons of mass destruction and ballistic missile programmes.
But the panel found that the law invoked to sanction Tornado Cash — the 47-year-old International Emergency Economic Powers Act — was ill-suited to “target modern technologies like crypto-mixing software.”
If Congress wants to take action against blockchain-based platforms to protect national security it should pass another law, the court suggested.
On trial
The plaintiffs in this civil case made a similar argument to Alexey Pertsev, the Tornado Cash dev who was sentenced to a five-year prison term in May by a Dutch court following his conviction for helping launder $1.2 billion in illicit funds on the platform. Pertsev is appealing his conviction.
Pertsev’s former colleague, Tornado Cash co-founder Roman Storm, is scheduled to go on trial for similar charges in the US in April. He has pleaded not guilty.
Legal experts cautioned against reading too much into the US appellate ruling.
“While we should celebrate this, we should temper our celebration,” Reuben Yap, co-founder of privacy protocol Firo and former partner at Malaysian law firm Reddi & Co Advocates, told DL News.
“This covers only whether smart contracts can be sanctioned and does not necessarily give protection to the developers of such protocols.”
Crypto market movers
- Bitcoin is up 1.7% over the past 24 hours to trade at $93,697.
- Ethereum is down 4.1% to trade at $3,450.
What we’re reading
- How Bitcoin’s rise made Monero a darknet ‘boogeyman’ for regulators — DL News
- Ripple drops another $25m into crypto PAC to sway 2026 congressional races — CoinDesk
- How Microstrategy could collapse — Milk Road
- Two signs Bitcoin’s surge isn’t over as traders not yet ‘showing off their lambos’ — DL News
Liam Kelly is a Berlin-based DL News correspondent. Got a tip? Email at liam@dlnews.com.