In summary
- Roman Storm seeks to have charges dropped following a ruling that finds Tornado Cash sanctions unconstitutional.
- The court recognized that immutable smart contracts are not owned or controlled by their creators.
- Privacy advocates celebrated the ruling, while some call for more regulation of Ethereum and its validators.
Roman Storm, co-founder of Cryptocurrency mixing platform Tornado Cash, hopes to have charges against him dropped after sanctions against his software were lifted.
In Storm’s December 18 motion to dismiss, he cites the Fifth Circuit’s recent ruling that the Treasury’s Office of Foreign Assets Control (OFAC) overstepped its bounds in sanctioning Tornado Cash’s immutable smart contracts. The ruling recognized that standalone software that no one controls cannot be classified as property.
The ruling, the document states, “makes clear that there is no deliberate action that Mr. Storm could have taken here.” Furthermore, “developers’ lack of control over revenue makes them legally incapable of conspiring to commit money laundering and negates the knowledge element of a money laundering charge.”
“Tornado Cash is difficult to control due to the immutable nature of smart contracts,” Stephen Ajayi, dApp Audit Technical Lead at Blockchain cybersecurity firm Hacken, told Decrypt. “It is completely decentralized, globally accessible, and difficult to censor on Ethereum, which is the fundamental principle of decentralization.”
These points are supposedly reinforced by the appeals court’s finding that smart contracts “are not ‘owned’ by a national or foreign entity,” and “cannot be blocked” under the law. The creators of the contracts are also “powerless to stop” any sanctioned entity using them.
“Mr. Storm could no more choose to stop them than he could choose to stop the sunrise,” the document quotes.
Tornado Cash is a decentralized coin mixer created to preserve the privacy of cryptocurrency users by anonymizing deposits using cryptography. The service has seen entries from wallets associated with major hacks. Due to such transactions — including some allegedly linked to North Korea — the US Treasury Department sanctioned Tornado Cash in early August 2022.
Privacy advocates reacted positively to the recent Fifth Circuit ruling. Anoop Nannra, CEO of web3 intelligence and security firm Trugard Labs, acknowledged that “this is a step in the right direction.”
Nannra raised concerns about the extent of the overreach. The ruling also highlighted the problem, noting that the justices “reject the Department’s invitation to judicial legislation, reviewing the work of Congress under the guise of interpreting it.”
“Legislating is the job of Congress, and only Congress,” the judges stressed. While privacy advocates welcome the ruling, the measures had limited impact.
Still, some believe the government should try to tighten its control over cryptocurrencies. Irfan Shaik, founder of blockchain auction project Interstate, suggests a more extreme solution. According to him, regulators could target the Ethereum network by regulating how its validators act.
He explained that “the government could target mixer users and even punish block builders for including censored transactions in their blocks.”
He highlighted that “major developers actually censor ethereum transactions that are sanctioned.” However, data from censorship tracking service Censorship.pics shows that Ethereum block developers censoring transactions dropped from nearly 70% this summer to less than 5%.
Edited by Stacy Elliott.
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