One small step for a tornado, one giant leap for mankind.

Written by: Liu Jiaolian

Last night (11.28 Teaching Chain Insider: All Good News) it was mentioned that the U.S. Fifth Circuit Court of Appeal ruled on Wednesday in the OFAC (U.S. Treasury Department's Office of Foreign Assets Control) sanctions against Tornado that "immutable smart contracts" on the blockchain cannot be sanctioned under current laws.

This is a bright moment for the spirit of the rule of law. This is a great victory of decentralization over traditional law.

To understand the significance of this ruling, we need to first understand: What is blockchain? What is a smart contract? What is an immutable smart contract? What is Tornado?

As we all know, blockchain is an automatic accounting system maintained independently by many unspecified entities. These independent entities do not belong to the same company or organization, but act independently and are even scattered all over the world, lacking centralized control. This highly loose collaboration between people is called "decentralization."

This way of collaboration is the product of human civilization evolving to an advanced stage, starting with the invention of Bitcoin by Satoshi Nakamoto in 2008 and the launch of the Bitcoin system in 2009. Prior to this, all large-scale human collaboration, from companies to countries, was centralized. In the centralized model, the underlying color to ensure the achievement of cooperation is "violence", or "top-down coercive force", which can also be called "legal right to harm".

A small thing can reveal a big thing. Think about it, why are you always so cautious when you are at work, afraid of offending your leader and being bullied? Essentially, it is because your leader, as your superior, has the legal right to harm you. Although the leader may not necessarily use this power against you, it is like a sword of Damocles hanging over your head at all times, making you nervous and trembling all the time. After being domesticated for a long time, you will subconsciously look up to the authority of the leader, obey the instructions of the leader, and even develop Stockholm syndrome, feeling grateful for the leader's reward for giving you a meal.

Why do subordinates of the opposite sex often half-heartedly give in to their leaders in the workplace? This is essentially due to the centralized power structure, which causes the superiors to exploit their subordinates both mentally and physically.

Therefore, decentralization is nothing less than another great liberation of the human spirit and even the body. In a truly decentralized system, there is no leadership, no authority (or authoritarianism), no violence, no oppression, and no legal harm. Here, everything is based on your voluntary, autonomous, and spontaneous decision. Here, no one can force you to do anything. Here, you have the highest level of freedom - the freedom to say "no".

The state is the highest form of violent aggregation constructed by human civilization so far, and the largest in scale. Government departments are the tools that the state uses to implement this powerful aggregation of violence both internally and externally. Traditional law is the instruction manual for using the tool.

The United States is one of the most powerful countries on Earth. This means that it has the most powerful and fiercest violence on Earth. OFAC, the full name of the Office of Foreign Assets Control, is a department of the U.S. government. The department's responsibility is to enforce economic and trade sanctions related to U.S. national security and foreign policy. Its sanctions are mainly aimed at entities or individuals outside the United States that pose a threat to the United States.

Tornado Cash is a set of smart contract codes running on the Ethereum blockchain. The function of this set of smart contract codes is to mix the digital currencies that have been deposited into a pot, and then take them out and put them into each person's bowl. This is called "mixing coins". Obviously, the "mixing coins" function has a natural illegal use - money laundering.

So, what is a smart contract? A smart contract is actually a computer code, or computer instructions. Unlike traditional codes that run on ordinary computers or servers (cloud), smart contracts are computer codes that run specifically on blockchains.

What’s the difference when running on a blockchain? As we mentioned above, the characteristic of blockchain is decentralization. Once the code is deployed on the blockchain, it cannot be modified (even if there is a bug, it cannot be withdrawn or corrected, and you can only watch it go wrong), nor can it be restarted or interfered with at will, even by the original developer and deployer - of course, technically speaking, unless the developer leaves a "backdoor" code in the code specifically for controlling the smart contract.

So, it is clear to us here that if the blockchain used is a truly decentralized blockchain (rather than a pseudo blockchain controlled by a company), then the smart contracts running on the blockchain can be divided into two categories:

One type is a smart contract with a control backdoor. This is a variable smart contract.

Most of the smart contracts that are operated by a company have various backdoors. For example, in the smart contract of USDT, Tether has the "backdoor" permission to freeze the assets of any address at will. For another example, almost all the smart contracts of cross-chain bridges are so-called "upgradeable smart contracts", and the development team behind them has a special "backdoor" that can change the contract logic at any time.

The other type is smart contracts without any control backdoors. This is what we originally called "immutable smart contracts".

Examples in this regard need to be carefully selected. To be honest, in the blockchain field, teams that do things so "particularly" can be said to be extremely rare! Jiaolian gives three examples:

The simplest example is WETH. This smart contract is immutable once deployed, and no one can have control over the contract.

The second example is Uniswap. Although Uniswap has a company behind it, Uniswap Labs, the team is very particular about what it does. You can see that every time a new version is released, V1, V2, V3, and V4, it has to be redeployed. This is because looking at its open source code, you can see that they are all implemented as immutable smart contracts and cannot be upgraded in situ. As for the control of the fee switch, it is handed over to the governance contract and jointly controlled by the community, thus eliminating the last single point of control.

And the third example is the protagonist of today’s story: Tornado Cash.

In August 2022, the U.S. Treasury Department imposed sanctions on Tornado for allegedly facilitating more than $7 billion in illicit transactions, including funds related to North Korea’s “Lazarus Group.”

In August 2023, two Tornado developers, Roman Storm and Roman Semenov, were indicted for money laundering and sanctions violations. In May 2024, another developer, Alexey Pertsev, was convicted of laundering $1.2 billion and sentenced to 64 months in prison.

OFAC’s so-called sanctions smart contracts cannot stop the code from running, but instead indiscriminately harm everyone involved with it - arresting developers and requiring all exchanges to freeze and ban all users’ funds from Tornado.

To give an example, it is like when gangsters use kitchen knives to hack people, so OFAC arrests Wang Mazi and Li Xiaoer who produced the kitchen knives, and then notifies the whole society to confiscate the kitchen knives from everyone.

So some users were angry, and in anger, they filed a lawsuit against the U.S. Treasury Department.

In September 2023, Joseph Van Loon and other plaintiffs filed an appeal challenging the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) sanctions against Tornado.

The plaintiffs argued that OFAC exceeded its authority under the International Emergency Economic Powers Act (IEEPA) by treating Tornado’s immutable smart contracts as sanctionable “property.” The appeal came after the district court ruled in favor of OFAC’s action.

Fast forward to now. In November 2024, the U.S. Fifth Circuit Court ruled that the Treasury Department exceeded its authority by immutable smart contracts that sanctioned Tornado.

The Fifth Circuit held that when smart contracts are immutable — meaning no entity can modify or control them — they cannot be classified as sanctionable “property” under existing law.

The court noted that the immutable smart contracts at issue in the case “are not property because they cannot be owned.”

The ruling, which overturned a lower court ruling, was seen by industry authorities as an important victory for privacy advocates and blockchain developers, providing clear legal guidance for the development of similar products.

Of course, mutable smart contracts with control backdoors are still at risk of facing sanctions. OFAC can choose to sanction the person or company that controls the smart contract.

One small step for a tornado, one giant leap for mankind.

We also have a deeper understanding from this case of the importance of "giving up control".

Satoshi Nakamoto had a clear mind and was ready to give up all his control over the Bitcoin system from the beginning. He even gave up all his real influence and chose to become an eternal legend.

The Uniswap team, or its founder Hayden Adams, also deeply understood the core essence of decentralization, so they made appropriate designs when building the system.

Even though I am gone, the systems I delivered continue to run.

If I am gone, each of you is me.

This is the greatest value of decentralization.