In a significant turn of events, a federal court in Texas has ruled that the U.S. Treasury exceeded its authority in imposing sanctions on Tornado Cash, a decentralized encryption protocol. This is the second time the Treasury has failed to regulate immutable smart contracts.



What Does the Court Say?



The ruling confirms that the immutable smart contracts of #TornadoCash cannot be considered "property" under the International Emergency Economic Powers Act (IEEPA). According to the court:



"Immutable smart contracts are not property because they cannot be owned."



This ruling highlights the limitations of the U.S. government's ability to regulate open-source blockchain protocols, which can be freely accessed by anyone with an internet connection.



Impact on Tornado Cash



Immediately after this news, the native token price of Tornado Cash (#TORN ) rose over 200%, surpassing $25 before adjusting back to $19.78, according to CoinGecko.



Tornado Cash, a coin mixer on the Ethereum blockchain, allows users to obscure transaction details by mixing funds. Although designed to protect privacy, this tool has also been exploited by hacker groups, notably the Lazarus Group from North Korea, to launder money.



Origin of the Sanctions



In August 2022, the Office of Foreign Assets Control (#OFAC ) of the Treasury Department blacklisted Tornado Cash for allegedly being involved in the laundering of $455 million in stolen cryptocurrency. The sanctions prohibit U.S. citizens from interacting with this protocol.



However, the court ruled that smart contracts are autonomous and immutable, thus cannot be classified as property to be regulated under current law.



Still Facing Challenges



Nevertheless, Tornado Cash has not escaped all legal troubles. In September 2024, a New York court denied the dismissal of money laundering charges against Roman Storm, co-founder of Tornado Cash. Additionally, developer Alexey Pertsev remains detained in the Netherlands on charges of laundering $1.2 billion through this protocol.



Implications for the Crypto Market



The new ruling from Texas not only protects the right to develop open-source software but also sets an important precedent for decentralized blockchain protocols. This is a positive signal for the crypto industry, as privacy protection tools like Tornado Cash may avoid excessive regulation.



However, the controversies around the use of this tool for malicious purposes remain a significant challenge in the future.