Legal Implications of Tornado Cash

Last week, the crypto world celebrated a major legal victory when a federal appeals court struck down OFAC’s sanctions on Tornado Cash’s immutable smart contracts in a Coinbase-funded lawsuit. While this decision is a significant win for crypto, its implications go far beyond the industry—it challenges the very limits of U.S. sanctions authority on open-source code.

In this episode, Coinbase’s Chief Legal Officer Paul Grewal and VP of Legal Leah Bressack discuss the case, the reasoning behind the court’s decision, and its broader implications, especially given that other cases are still in court. They address whether they think the government will appeal, how this ruling impacts other privacy tools and the other lawsuits, and why the case is a critical precedent for the intersection of code, law, and innovation.

Plus, what does this mean for Tornado Cash developer Roman Storm? 

Show highlights:

• Why the decision was so significant, according to Paul
• What reasons the judge used in the ruling
• The basics of Tornado Cash and why OFAC sanctioned it in 2022
• Why Coinbase decided to get involved in the case 
• Why a District Court had previously agreed with OFAC 
• Whether the government will appeal and what the implications of the case are outside of crypto
• When users could start using the protocol
• Whether users will be safe to use relayers, which add privacy
• Why Paul believes that the 11th Circuit, where the Coin Center Tornado Cash lawsuit was filed, will not ignore this ruling from the 5th Circuit
• Whether the judges were encouraging Congress to update IEEPA to make it possible for OFAC to sanction smart contracts
• Whether there’s a risk that under new legislation OFAC could sanction smart contracts
• How the case of Tornado Cash developer Roman Storm could be impacted by this decision
• Paul’s and Leah’s take on Balaji’s proposal to build privacy-preserving zero knowledge smart contracts on ZEthereum
• Whether the judges’ opinion will have an impact on existing privacy projects
• What types of sanctions and regulations the government can impose to prevent money laundering

Visit our website for breaking news, analysis, op-eds, articles to learn about crypto, and much more: unchainedcrypto.com

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Guests:

• Paul Grewal, Coinbase’s chief legal officer
• Previous appearances on Unchained:
• Coinbase’s Top Lawyer Calls SEC Wells Notice a ‘Massive Overreach’ - Unchained
• Just a Coincidence? Coinbase and Polygon Lawyers See Bad Omens in SEC Crackdown
• Leah Bressack, VP of legal at Coinbase

Links

• Previous coverage of Unchained on Tornado Cash:
• Did OFAC Overstep by Sanctioning Tornado Cash?
• Tornado Cash Sanctioned. Did the Government Overstep Its Bounds?
• Unchained: Treasury Overstepped With Tornado Cash Sanctions, Rules U.S. Appeals Court
• Balaji’s tweet on Zatoshi and Zethereum
• Bankless: Roman Storm Speaks - Tornado Cash Developer on What’s at Stake

Timestamps:

• 00:00 Intro
• 01:39 Why this ruling is a major milestone for crypto
• 02:50 The judge’s key reasoning in striking down the sanctions
• 04:00 Why Tornado Cash was sanctioned in 2022
• 06:43 How Coinbase became involved in this landmark case
• 13:05 Why the District Court initially sided with OFAC
• 15:55 Whether the government will appeal, and what’s at stake beyond crypto
• 21:22 When Tornado Cash could be used again
• 25:07 Are users safe to use relayers for added privacy?
• 33:53 Why the 11th Circuit might uphold this ruling
• 38:28 Whether Congress is being nudged to rewrite sanctions laws
• 40:52 Could new legislation let OFAC target smart contracts again?
• 44:46 What this means for Tornado Cash developer Roman Storm
• 48:34 Thoughts on Balaji’s idea for ZEthereum
• 50:53 How the ruling could influence other privacy projects
• 54:08 What sanctions might look like in the fight against money laundering

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