Tornado Cash, a privacy-focused protocol, finds itself at the center of a legal storm (kinda funny how it’s Tornado in the Storm). Six users, backed by crypto giant Coinbase, are challenging the United States Treasury’s decision to place sanctions on the cryptocurrency mixer.

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The Allegations and Legal Maneuvers

The group of Tornado Cash users has taken their case to the U.S. Court of Appeals for the Fifth Circuit. Their legal representatives argue that the Treasury Department overstepped its bounds by sanctioning Tornado Cash transactions. According to the Nov. 13 filing, the Treasury’s actions are deemed to be “contrary to law and in excess of statutory authority.” This appeal follows an August decision where a Texas federal judge allowed the regulatory oversight of the Treasury’s Office of Foreign Assets Control on the crypto mixer.

Challenging Definitions: “Immutable and Ownerless”

The heart of the matter lies in the definition of smart contracts under Tornado Cash. The plaintiffs argue that these contracts are “immutable and ownerless,” making them ineligible for the Treasury’s regulatory sanctions. Furthermore, they challenge the Treasury’s definition of “interest,” asserting that Tornado Cash has no legal stake in users’ smart contracts. This legal chess game questions the very fabric of cryptocurrency regulation.


Coinbase’s Vocal Support

Coinbase, a major player in the crypto exchange realm, has thrown its weight behind the plaintiffs. Chief Legal Officer Paul Grewal expressed support for the appeal on social media, highlighting the careful consideration the appellate court would give to the filing. This public backing underscores the significance of the case in the crypto community.

The Ripple Effect: Coin Center’s Lawsuit

The Blockchain Association, another crypto advocacy group, is also making waves in the legal tussle. In a separate but related lawsuit, Coin Center challenged the Treasury over Tornado Cash sanctions in October 2022. The association’s second amicus curiae brief argues that OFAC’s decision was not only unlawful but also arbitrary and capricious, setting a dangerous precedent for privacy rights.

Conclusion: A Crossroads for Crypto Privacy

As Tornado Cash users fight for their digital privacy, the outcome of this appeal could set a precedent for the regulation of privacy-focused tools in the crypto space.

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The battle extends beyond the courtroom, with implications for how the crypto community navigates the delicate balance between privacy and regulatory compliance.

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