Three Ways the Tornado Cash Case Can Go From Here – DL News

A version of this story appeared in ours The instructions Newsletter on December 2nd. Sign in Here.

A court victory won by six Tornado Cash users last week excited crypto privacy advocates.

Their longstanding argument that code or software cannot be sanctioned has been upheld by a US appeals court.

But what happens next?

What’s next?

There are several options. First of all, the US Treasury Department’s Office of Foreign Assets Control (OFAC) cannot be happy that the sanctions against Tornado Cash were found to be unlawful.

The agency acted out of concern for national security, and citing that issue is typically met with broad approval among lawyers and lawmakers.

With an appeals court ordering a lower court to overturn significant portions of the sanctions, the government may appoint an en banc panel of judges in the Fifth Circuit Court of Appeals to rehear the case in the hope of a favorable ruling.

Or the agency could appeal directly to the U.S. Supreme Court, which has the final say if it takes on the case.

Although President-elect Donald Trump has selected three of the court’s nine justices in his first term, there is no telling how they will respond to the constitutional questions at stake in this case.

“These national security issues do not simply fall along party lines,” said Bill Hughes, senior counsel at Consensys DL News.

“Trump and those around him view crypto adoption as an important national policy, but note that when he first spoke on the subject, he said, ‘I want to make sure it’s safe.'”

It’s worth noting that the three-judge appeals panel highlighted how Tornado Cash’s smart contracts laundered $455 million in illicit money for the Lazarus Group, the North Korea-linked hacking company, as part of efforts to to finance the outlawed country’s nuclear weapons program.

The justices found the 47-year-old national security law underlying the sanctions inappropriate for application to smart contracts and also suggested that Congress could pass a new law covering blockchain-based technologies like Tornado Cash.

More hacks

What would this law look like?

“The new laws surrounding privacy technology would allow U.S. citizens to create and use systems that do not create centralized honeypots of personal data through KYC requirements,” said Ameen Soleimani, prominent Ethereum developer and Tornado Cash proponent DL News. KYC refers to “Know Your Customer” practices.

It is unclear whether Congress will take up such a bill next year.

Whatever happens on Capitol Hill usually takes a lot of time.

“China and Iran will probably have to hack a few more U.S. financial institutions and release everyone’s financial records before the U.S. government realizes that the best thing it can do to protect its own people is to help us do so. to protect ourselves,” Soleimani said.

Immutability for victory

Although the next steps are uncertain, there is no denying the potential of cryptocurrencies – immutability has prevailed.

“These judges did not appreciate cryptocurrencies or the ideas behind them because they are decentralized,” said Christian Zimmerman, partner and chief legal officer at venture firm Greenfield Capital DL News.

“If this wasn’t an immutable contract and someone had the admin keys, then this arrangement would be completely different.”

In fact, the court ruled that the smart contracts that enable the privacy protocol were not property.

No one owns or controls them, and there are no administrative keys that developers can use to modify the contracts.

The Texas appeals court found that OFAC erred when it added Tornado Cash to its sanctions list in 2022.

“The simple difference is creating a tool, not a service,” Hughes said.

Liam Kelly lives in Berlin DL News Correspondent. Do you have a tip? Email to [email protected].