Tornado Cash: A Decentralized Triumph Over Traditional Law
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Tornado Cash: A Decentralized Triumph Over Traditional Law
A small step for the tornado, a giant leap for mankind.
Navigating Web3 tides with focused insightsAuthor: Liu Jiaolian
Last night's Nov 28 Jiaolian Insider mentioned that the U.S. Fifth Circuit Court ruled this Wednesday on the case of OFAC (Office of Foreign Assets Control at the U.S. Department of Treasury) sanctioning Tornado Cash, stating that "immutable smart contracts" on the blockchain cannot be sanctioned under current laws.
This is a moment filled with the light of the rule of law. This is a great victory of decentralization over traditional legal systems.
To understand the significance of this ruling, we must first clarify: What is blockchain? What are smart contracts? What exactly are immutable smart contracts? And what is Tornado Cash?
As is well known, blockchain is an automated accounting system independently maintained by numerous unspecified participants. These independent entities do not belong to the same company or organization; they operate independently, even scattered across the globe, lacking centralized control. This highly decentralized mode of collaboration is called "decentralization."
This form of cooperation is a product of human civilization evolving to an advanced stage, originating from Satoshi Nakamoto’s invention and launch of the Bitcoin system in 2008 and 2009 respectively. Prior to this, all large-scale human collaborations—from corporations to nations—were centralized. In centralized models, the foundation ensuring cooperation is "violence," or more precisely, "top-down coercive power," which can also be termed as the "legitimate right to harm."
A small detail reveals the whole picture. Think about it: why do you always act so cautiously at work, fearing offending your boss and getting sabotaged? Fundamentally, it's because your superior holds legitimate power to harm you. While the boss may never actually exercise this power, it hangs over your head like the Sword of Damocles, keeping you constantly anxious and tense. After prolonged conditioning, you subconsciously look up to your boss’s authority, obey their instructions, and may even develop Stockholm syndrome, feeling deeply grateful just for being allowed to earn a living.
Why does one sometimes see female subordinates half-resisting, half-acquiescing to advances by their superiors? At its core, this stems from the comprehensive exploitation—both mental and physical—enabled by centralized power structures where superiors dominate subordinates.
Therefore, decentralization represents yet another great liberation—for both the human spirit and body. In a truly decentralized system, there are no bosses, no authorities (or authoritarian figures), no violence, no oppression, and no legitimate right to harm. Here, everything operates based on your own willingness, autonomy, and initiative. Here, no one can force you to do anything. Here, you attain the highest form of freedom—the freedom to say "no."
The nation-state is the highest and largest form of violent conglomerate constructed thus far in human civilization. Government agencies serve as tools through which the state exercises this aggregated powerful violence internally and externally. Traditional law is merely the user manual for these tools.
The United States is currently one of the most powerful countries on Earth. This means it possesses the strongest and fiercest violence on the planet. OFAC, short for Office of Foreign Assets Control, is a department within the U.S. government. Its responsibility is to enforce economic and trade sanctions related to U.S. national security and foreign policy, primarily targeting foreign individuals or entities perceived as threats to the United States.
Tornado Cash, operating on the Ethereum blockchain, consists of a set of smart contract code. The function of these smart contracts is to mix cryptocurrency deposits into a common pool and then redistribute them to various recipients—a process known as "coin mixing." Clearly, coin mixing has an inherent illegal use: money laundering.
So, what exactly are smart contracts? Smart contracts are essentially computer code or program instructions. Unlike traditional code running on ordinary computers or servers (cloud), smart contracts are specifically designed to run on blockchains.
What difference does running on a blockchain make? As previously stated, blockchain features decentralization. Once deployed onto the blockchain, such code cannot be modified (even if bugs exist, they cannot be withdrawn or corrected—errors must be watched helplessly). Nor can its operation be arbitrarily restarted or interfered with—even the original developers and deployers cannot do so, unless technically speaking, the developer left behind special "backdoor" code explicitly designed to control the smart contract.
Thus, we now clearly see that if the underlying blockchain is genuinely sufficiently decentralized (rather than a pseudo-blockchain controlled by a single corporation), smart contracts running on the blockchain fall into two categories:
One category includes smart contracts with built-in control backdoors. These are mutable smart contracts.
The majority of smart contracts operated behind the scenes by companies contain various backdoors. For example, the USDT smart contract grants Tether Company the "backdoor" privilege to freeze assets at any address arbitrarily. Similarly, almost all cross-chain bridge smart contracts are所谓 "upgradable smart contracts," whose development teams retain special "backdoors" allowing immediate changes to contract logic.
The other category comprises smart contracts without any control backdoors. These are what we initially referred to as "immutable smart contracts."
Finding examples here requires careful selection, because frankly, teams acting this scrupulously in the blockchain space are extremely rare! Jiaolian offers three examples:
The simplest example is WETH. This smart contract, once deployed, becomes permanently immutable, and no one possesses the authority to interfere with or control the contract.
The second example is Uniswap. Although Uniswap has a supporting company, Uniswap Labs, this team acts very scrupulously. Each time they release a new version—V1, V2, V3, V4—they redeploy anew, because examining their open-source code shows they have implemented it as immutable smart contracts, making in-place upgrades impossible. As for the control rights of the fee switch, they handed it over to a governance contract, collectively controlled by the community, thereby eliminating the last central point of control.
The third example is today’s protagonist: Tornado Cash.
In August 2022, the U.S. Department of Treasury sanctioned Tornado Cash, alleging it facilitated over $7 billion in illicit transactions, including funds linked to North Korea’s “Lazarus Group.”
In August 2023, two developers of Tornado Cash, Roman Storm and Roman Semenov, were charged with money laundering and violating sanctions regulations. In May 2024, another developer, Alexey Pertsev, was convicted of laundering $1.2 billion and sentenced to 64 months in prison.
OFAC’s so-called sanctions against the smart contract cannot stop the code from running but instead indiscriminately harm everyone associated with it—arresting developers and demanding all exchanges freeze and prohibit any funds originating from Tornado Cash.
To draw an analogy: if a criminal gang uses a kitchen knife to assault someone, OFAC arrests Wang Mazi and Li Xiaoeer who manufacture kitchen knives, then announces to society the confiscation of all kitchen knives in people’s possession.
Some users became furious. In protest, they took bold action—"the people suing the government"—and brought the U.S. Department of Treasury to court.
In September 2023, Joseph Van Loon and other plaintiffs filed an appeal challenging OFAC’s sanctions against Tornado Cash.
The plaintiffs argued that OFAC treating Tornado Cash’s immutable smart contracts as sanctionable "property" exceeded its authority under the International Emergency Economic Powers Act (IEEPA). This appeal followed a district court ruling supporting OFAC’s actions.
Now, in November 2024, the U.S. Fifth Circuit Court ruled that the Treasury Department overstepped its authority by sanctioning Tornado Cash’s immutable smart contracts.
The Fifth Circuit Court held that when smart contracts are immutable—meaning no entity can modify or control them—they cannot be classified as sanctionable "property" under existing laws.
The court pointed out that the immutable smart contracts involved in this case "are not property, because they cannot be owned."
This ruling overturns the lower court’s decision and is seen by industry experts as a significant victory for privacy advocates and blockchain developers, providing clear legal guidance for developing similar products.
Certainly, mutable smart contracts with control backdoors still face sanction risks. OFAC may choose to sanction the individuals or companies controlling the smart contracts.
A small step for Tornado Cash, a giant leap for mankind.
From this case, we gain deeper insight into the profound importance of "relinquishing control."
Satoshi Nakamoto had long understood this clearly, preparing from the outset to relinquish all control over the Bitcoin system. He even abandoned all real-world influence, choosing instead to become an eternal legend.
The Uniswap team, or its founder Hayden Adams, profoundly grasped this essence of decentralization, thus designing their system accordingly from the beginning.
Even if I am gone, the system I delivered will continue to operate.
If I am gone, each one of you becomes me.
This is the greatest value of decentralization.
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