- Court rules Tornado Cash smart contracts aren’t property, blocking OFAC’s sanctions under current law.
- Ruling affirms open-source software can’t be sanctioned, offering privacy protections for crypto users.
- Decision challenges outdated laws, urging updates to address the complexities of decentralized tech.
A US appeals court has ruled that the Treasury Department’s Office of Foreign Assets Control exceeded its authority when it imposed sanctions on Tornado Cash’s smart contracts. The Fifth Circuit Court of Appeals decided on November 26 to allow U.S. citizens to resume using the privacy-focused protocol.
Court Finds Smart Contracts Are Not Property
The court’s decision focused on Tornado Cash’s immutable smart contracts. These contracts operate as open-source software, meaning no entity owns or controls them. The judges determined that US law does not classify these smart contracts as property.
They explained that the International Emergency Economic Powers Act (IEEPA) authorizes OFAC to punish property owned or controlled by foreign nationals or companies. However, this does not apply to Tornado Cash.
Legal Challenge and Industry Reactions
The decision provides a significant victory for Tornado Cash users who filed a legal appeal against the sanctions. The plaintiffs, led by Joseph Van Loon, argued against sanctioning open-source software. The court agreed with and concluded that the sanctions were illegal.
Paul Grewal, Coinbase’s Chief Legal Officer, applauded the decision. Paul called the decision a victory for privacy and crypto innovation. Moreover, he called the decision a victory for privacy and crypto innovation. He emphasized the necessity of developing a balanced approach to cryptocurrency regulation.
Implications for Open-Source Software
This ruling may significantly impact how US law treats open-source technology. The court underlined the distinction between decentralized software and corporations that own assets. In addition, this distinction may influence how future lawsuits involving open-source software are handled.
The matter will now be returned to a federal district court in Austin, Texas, for additional proceedings. While the court’s decision permits Tornado Cash’s smart contracts to be removed from the sanctions list, the legal argument over privacy and cryptocurrency legislation remains unresolved.
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