A federal appeals court has decided that the U.S. Treasury Department went too far when it imposed sanctions on some smart contracts associated with Tornado Cash. The court said that these smart contracts are not owned by a foreign person or a group, which is a requirement for imposing sanctions. Bill Hughes, who works at ConsenSys, thought this was a good decision because it is unlikely that the Supreme Court would change it.
The court explained that the smart contracts in question cannot be owned or controlled by anyone. They were made through a special event with more than 1,000 people involved, which makes sure the code can’t be changed and can be used by anyone. The court said that no group can stop people from using the Tornado Cash smart contracts, and even though the Treasury put sanctions on them, they still work.
That means people who are not allowed to do business, like those from North Korea, can still use their money through these smart contracts. The ruling also talked about the Office of Foreign Assets Control’s (OFAC) idea that contracts and services can be considered property. The court disagreed with this in the case of smart contracts because the code doesn’t need people to run.
Instead, the court called the smart contracts tools, not services. The court also said that since these smart contracts can’t be owned, they are not considered property under OFAC’s rules, so they cannot be blocked under federal law. OFAC cannot impose sanctions on them. However, the court said that this ruling only applies to smart contracts that can’t be changed and don’t have special controls.
Other parts of Tornado Cash could still be affected by Treasury and OFAC actions.
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