Tornado Cash, which lets users keep their crypto transactions private, wins its sanctions appeal

• Tornado Cash, which anonymizes crypto transactions, was sanctioned by the U.S. in 2022 due to frequent use by criminals.

• On Wednesday, it won its appeal and sanctions were removed.

• This gives similar privacy-preserving crypto products the green light.

Crypto’s been on an all-time heater this month, with bitcoin redefining what “all-time high” means and reaching a peak price of over $99,000.

Now, crypto is hanging another banner on the rafters: a victory in the all-important Tornado Cash case.  

Tornado Cash is a service that anonymizes crypto transactions. Basically, it takes your transaction and mixes it up with a bunch of other transactions so that it's impossible to track which one was initially yours. 

This is a very useful service because though crypto has a rep of “shady” privateness, the reality is most crypto transactions are extremely public, much more so than regular credit card transactions or Venmo’s. 

The problem is that it’s almost too useful. Like, making it possible for North Korea to launder stolen funds useful. The U.S. government naturally wasn’t too thrilled about this capability, so they sanctioned it in 2022. 

This got a lot of people in crypto riled up because, to them, Tornado Cash is simply a few lines of code that anyone can use. If the goal of banning Tornado Cash is to stop North Korean hackers, why not just ban crypto altogether? Or code? Or the internet itself? 

As Coinbase Chief Legal Officer Paul Grewal puts it, “No one wants criminals to use crypto protocols, but blocking open source technology entirely because a small portion of users are bad actors is not what Congress authorized.”

It turns out the legal system agrees, as a US Federal Appeals court ruled that because the Tornado Cash smart contracts (code) are not the “property of a foreign national or entity,” they therefore can’t be sanctioned.

The immediate effect of the ruling is that Tornado Cash’s token TORN pumped nearly 870%. However, the more important longer-term effect is that privacy-preserving crypto products, even those used by nefarious actors, just got the green light.