The Tornado Cash Case Might Not Be Ironclad After All

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Six individuals are challenging the U.S. Treasury’s sanction against Tornado Cash, a popular cryptocurrency mixer. They presented a compelling four-pronged argument to overturn the ruling, which they believed to be an example of excessive government intervention and an infringement on First Amendment rights. The primary narrative of this legal dispute isn’t about establishing exclusive regulations for emerging technology, but it’s a clear examination of government intrusion and potential rights violations.

The Backdrop: When Technology Meets Law

Paul Grewal, the Chief Legal Officer of Coinbase, encapsulated these arguments in a series of tweets. Grewal contends that the government is misusing a property sanctions statute to suppress open-source software, contrary to the law’s intent. This argument aligns with Coinbase’s stance, supporting the lawsuit against the U.S. Department of Treasury, originally filed on September 8, 2022.

The six petitioners rallying behind this lawsuit include Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch. These individuals have had prior interactions with Tornado Cash, highlighting their vested interest in the case.

Deciphering The Tornado Cash Arguments: A Closer Look

Their first argument pertains to the Treasury’s attempts to label Tornado Cash as a foreign “national”. This is a prerequisite for the Treasury to justify its actions. However, the plaintiffs argue that the Treasury inaccurately labeled Tornado Cash as an unincorporated association, making their argument questionable.

The plaintiffs argue that Tornado Cash cannot be classified as an unincorporated association per the Treasury’s standards. Their definition includes all TORN token holders, regardless of a common purpose or combined efforts.

The second argument put forth by the petitioners revolves around open-source smart contracts, the technology that powers Tornado Cash. According to the plaintiffs, these contracts cannot be classified as property since the term property generally refers to something that can be possessed.

That leads to their third argument, that even if these contracts were to be considered property, no entity related to Tornado Cash has any vested “interest” in them. Consequently, they argue that the Treasury has no jurisdiction to impose sanctions.

The First Amendment Quandary

The plaintiffs’ final argument delves into constitutional rights. They assert that even if the Treasury does have the authority to impose sanctions, doing so infringes upon Tornado Cash’s First Amendment rights. They quickly dismiss the Treasury’s counter-argument suggesting that Tornado Cash users should practice their right to free speech elsewhere, arguing that this infringes on their rights.

The U.S. Treasury had sanctioned several addresses associated with Tornado Cash on August 8, 2022, a month after the user interface code was open-sourced. 

The ongoing legal battle has sparked debates on the intersection of emerging technologies, regulatory control, and constitutional rights. As the situation unfolds, it’s evident that the outcome will have far-reaching implications on the broader crypto industry and the regulatory landscape.

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