Navigating Tornado Cash Legalities

This chapter explores the legal complexities surrounding the Tornado Cash lawsuit, focusing on key rulings and appeals in the Western District of Texas. It discusses the implications of the Fifth Circuit's decisions regarding sanctions against cryptocurrencies and the challenges faced by the government in enforcing these measures. Additionally, the conversation highlights the importance of distinguishing between legitimate users and malicious actors while addressing future regulatory approaches to smart contracts.

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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