The United States Court of Appeals for the Fifth Circuit has ruled against the Treasury Department’s Office of Foreign Assets Control (OFAC). The decision supports six plaintiffs who argued against the 2022 designation of Tornado Cash, a crypto-mixing protocol. The court determined that immutable smart contracts do not qualify as “property” and cannot be subject to sanctions.
OFAC sanctioned Tornado Cash in 2022, alleging it was often used for illicit purposes such as money laundering by entities like North Korea. However, the plaintiffs contended that the Treasury Department lacked the authority to sanction Tornado Cash. They insisted that the protocol is not a foreign object, individual, or thing capable of belonging to or being owned.
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Court Defends Immutable Smart Contracts
The court ruled that OFAC does not have the power to block immutable smart contracts, emphasizing that such protocols cannot be owned. While it acknowledged the risks posed by uncontrollable technology, it rejected the Department’s efforts at “judicial lawmaking.”
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Coin Center executive director Jerry Brito celebrated the decision, stating that the court affirmed their argument that immutable smart contracts are not property. Paul Grewal, Coinbase’s chief legal officer, also praised the ruling, calling the blocking of open-source technology unreasonable. He noted that targeting such protocols due to a minority of malicious users stifles innovation.
These restrictions have undergone praise from commentators because of the general trend of curbing the powers of the government concerning decentralized technologies such as cryptocurrency. This applied to Tornado Cash since the platform operates as open-source and remains unalterable after its launch on the blockchain.
This ruling comes amid another recent victory for the crypto sector. A district court rejected the SEC’s proposal to broaden the definition of “dealer” to include decentralized protocols and automated market makers. These outcomes highlight the judiciary’s critical role in shaping the regulatory landscape for blockchain and digital assets.
Conclusion
The Fifth Circuit’s decision to strike down OFAC’s sanctions on Tornado Cash marks a critical moment for decentralized technology. It reinforces the limits of regulatory authority over open-source blockchain protocols and underscores the importance of clear, balanced regulations.
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Maxwell Mutuma
Maxwell is a crypto-economic analyst and Blockchain enthusiast, passionate about helping people understand the potential of decentralized technology. He writes extensively on topics such as blockchain, cryptocurrency, tokens, and more for top publications such as Coingape, Coin Edition, and The Coin Republic. His goal is to spread knowledge about this revolutionary technology and its implications for economic freedom and social good.