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This Court Ruling in the U.S. Strengthened Government's Hand in Sanctions: Tornado Cash

A court in Texas recently ruled that the U.S. Government can sanction Tornado Cash just like it can sanction wallets and exchanges.

The U.S. government has expanded its powers to sanction cryptocurrencies.
Creator: gguy44 Credit: Getty Images/iStockphoto

TEXAS - A recent court ruling in Texas has granted the U.S. government expanded powers to impose sanctions, which could have concerning implications for the very essence of cryptocurrencies. This court ruling in August allows the government to target cryptocurrency wallets and exchanges and open-source cryptocurrency mixers, such as Tornado Cash.


The Reasoning Behind the Ruling


Before this ruling, the U.S. government's approach involved sanctioning specific wallet addresses. However, this proved ineffective as criminals could quickly create new wallets, eluding authorities. Yet, regarding exchanges, stricter regulations in some countries made it harder for criminals to launder their ill-gotten gains.


Nonetheless, exchanges were willing to cooperate with cybercriminals, which prompted the government to set its sights on the tools used to obfuscate the origins of these funds. Cryptocurrency mixers became a target because they allow users to intermingle their funds, making it extremely difficult to trace transactions. In August 2022, the Treasury Department announced sanctions against Tornado Cash, a widely-used mixer linked to criminal activities, including state-sponsored hacking.


The Debate Around Tornado Cash


Tornado Cash Mixer has facilitated over $7 billion in illicit transactions since its inception in 2019. The move represents a worrying departure from the original ethos of cryptocurrencies, which aimed to operate beyond the control of centralized authorities.


The challenge lies in the unique nature of Tornado Cash. It was not a conventional company but a decentralized autonomous organization (DAO). This presented a fundamental question: can the government remove a cryptocurrency protocol it disapproves of from the internet?


Cryptocurrency exchange Coinbase took a stand against the Treasury, funding a lawsuit that argued against the sanctions because a DAO couldn't be subjected to sanctions and that deleting the code from GitHub violated freedom of speech. Nevertheless, Judge Robert Pitman upheld the sanctions, asserting that people could still analyze and teach cryptocurrency concepts using the code if they refrained from conducting transactions.


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