The Victory of Privacy Technology: Tornado Cash Sanctions Overturned

Two years ago, Tornado Cash, the most well-known privacy application in the entire crypto ecosystem, was sanctioned by the Office of Foreign Assets Control (OFAC) under the U.S. Department of the Treasury.

The reason for the sanctions was the accusation that Tornado Cash was used for money laundering and illegal transactions. The specific measures included declaring the contract address of Tornado Cash as illegal, and some addresses that had transactions with the contract address were also blacklisted.

At that time, this incident caused a huge uproar in the community, with some brave individuals, including Vitalik, boldly expressing strong dissatisfaction with the U.S. government's high-handed actions.

Of course, some top DeFi projects immediately followed the U.S. government's measures and quickly cut ties with the sanctioned addresses.

At that time, some malicious users sent small transactions from blacklisted addresses to a large number of innocent addresses, intentionally poisoning the situation to drag more innocent parties into the blame.

I specifically shared about this incident in an article.

Thinking about this decision made by the U.S. government, I felt that the possibility of a reversal was very slim. Therefore, I believed that this sanction was a significant blow to privacy protection.

I never expected that this incident would now have a major turnaround. With the efforts of many activists, including the legal department of Coinbase and Ethereum core developers, the U.S. Fifth Circuit Court recently announced that the Treasury's sanctions were illegal.

ChainFeeds has a very good article analyzing this incident, and I have attached the link to that article at the end.

There are several key points in the court's ruling:

"The court believes that these smart contracts are decentralized, self-executing, and uncontrollable code, and should not be subject to sanctions."

"At the same time, the court pointed out that although the technology may be abused, administrative agencies do not have the authority to expand the scope of sanctions beyond what the law allows."

Regarding why the Treasury's sanctions exceeded its authority, the court stated:

"Because these immutable smart contracts do not constitute 'property' in either the ordinary, common sense or under OFAC's definition," the court concluded that "OFAC exceeded its statutory authority."

In my view, the court's ruling, to some extent, acknowledges the neutrality of technology, distinguishing between the technology itself and illegal activities.

Such a ruling vividly reflects the protection of technological innovation.

The most direct benefit of this incident is probably the token of Tornado Cash, but I believe the more profound impact lies in reopening the door for the development of privacy technology.

I remember reading about Vitalik's vision for the future of Ethereum a few years ago, where a significant part was to protect privacy using zero-knowledge proof-related technologies.

The original intention of this plan was, on one hand, to better protect personal privacy; on the other hand, it was hoped that Ethereum could play a greater role in the commercial field, allowing both parties in a transaction to avoid leaking trade secrets due to transparent on-chain information.

I have always had great expectations for this plan.

However, this plan seems to have been rarely mentioned in recent years. I wonder if it is because the U.S. government's sanctions have interfered with the implementation of the plan?

I truly hope that this plan can be re-emphasized and substantively promoted moving forward.

In the ruling, the court repeatedly mentioned the immutable nature of smart contracts. This further highlights the importance of decentralization as a foundational layer of blockchain infrastructure.

This reminds me of Vitalik's vision when planning Ethereum 2.0, where he envisioned that Ethereum should be able to resist attacks from governments and withstand the destruction of a third world war.

Without such grand visions and extreme pursuits, it would be impossible for Ethereum to have its "immutability" of smart contracts recognized by human legal systems.

This ruling also objectively pushes the U.S. to the forefront of privacy protection in the crypto ecosystem.

This ruling can be seen as a significant goodwill gesture towards privacy technology. If other countries encounter similar issues, the most lenient regulatory measures they could adopt would probably be similar. Once the regulations in other countries become too strict and exceed those of the U.S., relevant companies and teams will certainly move to the U.S.

In summary, this ruling is of great significance for the development of privacy technology in the crypto ecosystem, but it is not only a technological victory; it is also a victory for humanity's pursuit of freedom and privacy.

Of course, it is also a victory for the rule of law.

Reference link:

https://substack.chainfeeds.xyz/p/ofac-tornado-cash