A small step for Tornado Cash, a giant leap for humanity.
Written by: Liu Jiao Lian
Last night, "11.28 Jiao Lian Insider: All Good News" mentioned that the U.S. Fifth Circuit Court ruled this Wednesday on the OFAC (Office of Foreign Assets Control) sanctions against Tornado Cash, stating that "immutable smart contracts" on the blockchain cannot be sanctioned under current law.
This is a bright moment for the spirit of the rule of law. It is a great victory of decentralization over traditional law.
To understand the significance of this ruling, we first need to understand: What is blockchain? What is a smart contract? What is an immutable smart contract? And what is Tornado Cash?
As we all know, blockchain is a set of automated accounting systems maintained independently by numerous unspecified entities. These independent entities do not belong to the same company or organization; they operate independently, even scattered around the world, lacking centralized control. This highly loose form of collaboration among people is called "decentralization."
This form of collaboration is a product of human civilization evolving to a higher stage, starting with Satoshi Nakamoto's invention of Bitcoin in 2008 and its launch in 2009. Before this, all large-scale human cooperation, from companies to nations, was centralized. In a centralized model, the underlying assurance of cooperation is "violence," or "top-down coercion," which can also be referred to as "legitimate harm."
To understand the nuances, think about why you are always cautious at work, afraid of offending your boss and facing repercussions. Essentially, it is because your boss, as your superior, has the legitimate right to harm you. Although the boss may not necessarily exercise this power against you, it hangs over you like the sword of Damocles, keeping you on edge and anxious. Over time, you unconsciously come to revere your boss's authority, comply with their directives, and even develop Stockholm syndrome, feeling grateful for the crumbs of favor they bestow upon you.
Why do we sometimes see subordinates flirting with their superiors in the workplace? Essentially, it is the comprehensive exploitation from the superior to the subordinate caused by the construction of centralized power.
Therefore, decentralization represents another great liberation of the human spirit and even the body. In a truly decentralized system, there are no leaders, no authorities (or authoritarianism), no violence, no oppression, and no legitimate harm. Here, everything is based on your willingness, autonomy, and spontaneity. No one can force you to do anything. Here, you gain the highest form of freedom—the freedom to say "no."
The state is the largest collective of violence constructed by human civilization to date. Government departments are the tools through which the state implements this amassed power of violence both externally and internally. Traditional law is essentially the user manual for these tools.
The United States is currently one of the most powerful countries on Earth. This means it possesses the strongest and most ferocious violence on the planet. OFAC, the Office of Foreign Assets Control, is a department of the U.S. government responsible for enforcing economic and trade sanctions related to U.S. national security and foreign policy. Its sanctions primarily target entities or individuals outside the U.S. that pose a threat to the country.
Tornado Cash is a set of smart contract codes running on the Ethereum blockchain. The function of this smart contract code is to mix the incoming digital currency into a single pool and then distribute it back to individuals, which is called "mixing." Clearly, the "mixing" function has a natural illegal use—money laundering.
So, what is a smart contract? A smart contract is essentially computer code or computer instructions. Unlike traditional code that runs on ordinary computers or servers (cloud), smart contracts are specifically designed to run on the blockchain.
What is different about running on the blockchain? As mentioned earlier, the characteristic of blockchain is decentralization. Once these codes are deployed on the blockchain, they cannot be modified (even if there is a bug, it cannot be retracted or corrected; you can only watch it go wrong), nor can they be arbitrarily restarted or interfered with, not even by the original developers and deployers—unless, technically speaking, the developers left a "backdoor" code specifically for controlling that smart contract.
So, we understand that if the blockchain used is genuinely decentralized (not a pseudo-blockchain controlled by a single company), then smart contracts running on the blockchain can be divided into two categories:
One category is smart contracts with control backdoors. These are variable smart contracts.
The vast majority of smart contracts operated by a company have various backdoors. For example, the USDT smart contract allows Tether to freeze any address's assets at will. Similarly, almost all cross-chain bridge smart contracts are so-called "upgradable smart contracts," where the development team behind them has special "backdoor" access to change the contract logic at any time.
The other category is smart contracts without any control backdoors. This is what we initially referred to as "immutable smart contracts."
Examples in this area need to be carefully selected. To be honest, in the blockchain field, teams that are so "particular" about their work are extremely rare! Jiao Lian provides three examples:
The simplest example is WETH. This smart contract is immutable once deployed, and no one can intervene in the contract.
The second example is Uniswap. Although Uniswap has a company behind it, Uniswap Labs, this team is very meticulous. You can see that with each new version they release—V1, V2, V3, V4—they redeploy because their open-source code is implemented as immutable smart contracts that cannot be upgraded in place. As for the control of the fee switch, it is handed over to a governance contract, controlled collectively by the community, thus eliminating the last point of control.
The third example is the protagonist of today's story: Tornado Cash.
In August 2022, the U.S. Treasury imposed sanctions on Tornado Cash for allegedly facilitating over $7 billion in illegal transactions (including funds related to North Korea's Lazarus Group).
In August 2023, two developers of Tornado Cash, Roman Storm and Roman Semenov, were charged with money laundering and violating sanctions. In May 2024, another developer, Alexey Pertsev, was convicted of laundering $1.2 billion and sentenced to 64 months in prison.
The so-called sanctions by OFAC against smart contracts do not stop the code from running; instead, they indiscriminately harm all related individuals—arresting developers and demanding that all exchanges freeze and prohibit all users from accessing funds from Tornado Cash.
It's like saying that if a gang uses a kitchen knife to harm someone, OFAC would arrest the knife manufacturers and announce to society to confiscate all kitchen knives in people's hands.
As a result, some users became furious. In a fit of anger, they filed a lawsuit against the U.S. Treasury.
In September 2023, Joseph Van Loon and other plaintiffs appealed, questioning the sanctions imposed by OFAC on Tornado Cash.
The plaintiffs argued that OFAC's classification of Tornado Cash's immutable smart contracts as "property" subject to sanctions exceeded its authority under the International Emergency Economic Powers Act (IEEPA). This appeal was made after a district court ruled in favor of OFAC's actions.
Now, as of November 2024, the U.S. Fifth Circuit Court ruled that the Treasury exceeded its authority in sanctioning Tornado Cash's immutable smart contracts.
The Fifth Circuit Court stated that when smart contracts are immutable—meaning no entity can modify or control them—they cannot be classified as "property" subject to sanctions under existing law.
The court pointed out that the immutable smart contracts involved in this case "are not property because they cannot be owned."
This ruling overturned the lower court's decision and is seen by industry authorities as a significant victory for privacy advocates and blockchain developers, providing clear legal guidance for developing similar products.
Of course, variable smart contracts with control backdoors still face the risk of sanctions. OFAC can choose to sanction the individuals or companies controlling the smart contracts.
A small step for Tornado Cash, a giant leap for humanity.
From this case, we also gain a deeper understanding of the important significance of "giving up control."
Satoshi Nakamoto had long been clear-minded and prepared to relinquish all control over the Bitcoin system from the very beginning. He even gave up all real-world influence, choosing to become an eternal legend.
The Uniswap team, or its founder Hayden Adams, also deeply understands the core essence of decentralization, which is why they designed the system with this in mind.
Even if I am no longer here, the system I delivered continues to operate.
If I am no longer here, each of you is me.
This is the greatest value of decentralization.
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