Anonymity Is No Longer a Crime: Analysis of the Tornado Cash Case Ruling & Legal Insights

On November 26, the Fifth Circuit Court of Appeals in the United States overturned the sanctions imposed by the OFAC on the cryptocurrency mixer Tornado Cash. This ruling reflects a much deeper understanding of the protocol's structure and functionality compared to the initial decision by the lower court.

The appellate court also addressed several critical yet contentious legal questions, establishing a precedent that could have transformative implications for the blockchain industry.

Join Sergey Ostrovskiy as he delves into the appellate court’s groundbreaking decision on Tornado Cash. In this article, we unpack the court’s key legal positions, examine the implications for immutable smart contracts, and explores the potential ripple effects on the blockchain ecosystem.

Immutable Smart Contracts Are Not Property

A central issue in the Tornado Cash case was whether immutable smart contracts can be classified as property or services — a distinction essential for applying sanctions under the International Emergency Economic Powers Act (IEEPA).

Under legal theory, property is defined as an object that can be owned, controlled, or disposed of, including the ability to restrict access to it by others. The court ruled that immutable smart contracts fail to meet these criteria because no single party can alter or restrict their use. Even if the protocol’s creators wanted to restrict someone from using it, they would be unable to do so.

The court further clarified that while a smart contract can facilitate a service, it is not, by itself, a service. Referring to legal definitions, the court noted that “a service is an intangible product in the form of human effort, such as labor, skill, or advice.” Immutable smart contracts operate independently of human effort once deployed, and cannot be considered services.

Based on these findings, the court held that "Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not property".

A Smart Contract Is Not a Contract

The court also drew a clear distinction between smart contracts and legal contracts—a perspective I recently explored in my article on the “Code Is Law” concept, which has now been officially validated by this ruling.

The court offered two main arguments:

1. A legal contract requires an agreement between two or more parties. Immutable smart contracts lack a second party – someone with whom the smart-contract user could deal, – which renders formation of legal contract impossible;

2. In order for a legal contract to be concluded, one party makes an offer, while the other one has to accept it. But in the case with an immutable smart contract, event if a user would make an offer, there is no entity on the protocol side capable of accepting it.

The court also compared immutable smart contracts to mutable ones. The three judges concluded that mutable smart contracts could, at most, facilitate the creation of a contract between the smart contract’s operator and a third party through use of the smart contract, but the smart contract is not itself a contract.

The appellate court further criticised the lower court’s analogy of a vending machine. This analogy suggests that smart contracts are akin to vending machines, pre-loaded with products which the customers may purchase from it; in this case, the legal contract would be between the machine owner and the customer. The court concluded that even if the immutable smart contracts were, at some point, a “vending machine,” they are no longer, since there is no one who controls the smart contracts or could “unplug” the immutable smart contracts.

The key takeaway here is that the code is not law. For code or smart contracts to hold legal significance, they must be paired with appropriate legal frameworks.

Crypto Mixers Are Not Inherently Evil

One of the most significant aspects of the ruling is the court’s recognition that cryptocurrency mixers like Tornado Cash — and other privacy-focused technologies — are widely used by law-abiding individuals for legitimate purposes, including personal security, privacy, and more.

The court acknowledged that sanctioning an entire sector of the crypto industry due to the misconduct of a few bad actors could infringe on the rights of law-abiding citizens and suppress innovation.

Conclusions in the Tornado Cash Case

This ruling is a major victory for the blockchain industry and highlights the importance of financial privacy. The decision firmly establishes that anonymity-enabling technologies cannot be sanctioned solely because a minority of users misuse them for illegal purposes. Regulators must now demonstrate a direct link between a specific violation and the tool used, rather than broadly treating privacy-enhancing technologies as threats.

This decision sets a powerful precedent, reinforcing the principle that technological tools designed to enhance privacy should not automatically be treated with suspicion.