Tornado Cash Sanctions DROPPED — Here's What it Means For Crypto

This month, the cryptocurrency community witnessed another significant pro-crypto move by the government.

The U.S. Treasury Department lifted its sanctions against Tornado Cash, allowing users to regain access to the privacy-enhancing mixer protocol on Ethereum.

This decision serves as yet another instance of the U.S. government retracting legislation that had severely impacted the cryptocurrency industry.

Let's explore what Tornado Cash is, the reasons behind its initial sanctions, and the profound implications for both the crypto world and individual freedoms stemming from the lifting of these sanctions.

What is Tornado Cash?

Tornado Cash is a virtual currency mixer that operates on the Ethereum blockchain. It was designed to bring privacy to the blockchain by obfuscating the details of cryptocurrency transactions, including their origin, destination, and the parties involved. 

By mixing various transactions together before sending them out to their respective recipients, Tornado Cash made it challenging to trace the flow of funds, a feature aimed at increasing user privacy. This same feature which enabled ‘good’ actors to enjoy privacy with their money also enabled ‘bad’ actors to launder stolen funds.

Why Was Tornado Cash Sanctioned?

The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash because it was used to launder over $7 billion worth of virtual currency since its inception in 2019. 

A significant portion of these laundered funds included over $455 million stolen by the Lazarus Group, a hacking group sponsored by the Democratic People’s Republic of Korea (DPRK) and previously sanctioned by the U.S. in 2019. 

Tornado Cash was also implicated in laundering proceeds from other major thefts, such as the Harmony Bridge Heist and the Nomad Heist.

The sanctions against Tornado Cash were enacted under Executive Order (E.O.) 13694 which targets entities involved in cyber-enabled activities posing significant threats to U.S. national security, foreign policy, or economic health and financial stability.

Why Were Tornado Cash Sanctions Dropped? 

The U.S. Court of Appeals of the 5th Circuit ruled that OFAC had overstepped its authority. 

They determined that Tornado Cash is an open-source, self-executing software protocol that facilitates anonymous transactions through its smart contracts. 

The plaintiffs argued that this software, due to its characteristics of privacy, immutability, and being unownable and uncontrollable—even by its creators—is not a proper subject for sanctions under the IEEPA.

Implications of Lifting Tornado Cash Sanctions

1. Freedom to Publish Open-Source Code without Prosecution

Creating a climate of fear among developers and entrepreneurs regarding the publication of open-source software effectively stifles innovation in the cryptocurrency sector.

From 2020 to 2024, the Biden Administration contributed to this climate through regulatory ambiguity and enforcement actions, as evidenced by the case of Tornado Cash. Such measures left developers and crypto users in a state of uncertainty, unsure of the legal boundaries for their activities.

However, with the lifting of sanctions, a renewed sense of freedom is expected to invigorate innovators, encouraging them to develop new digital financial infrastructure that has the potential to significantly improve the world.

2. The Right to Financial Privacy

People should care more about privacy. 

Unfortunately, however, the average American citizen generally accepts that their personal data—including location, Google searches, financial information, and biometrics—is fully tracked and stored in both government and private corporate databases.

At least now U.S. cryptocurrencies users can obtain privacy on blockchains which have mixing protocols like Tornado Cash.

3. Evolving Regulatory Environment

Executive Order 13694 titled “Blocking the Property of Certain Persons Engaging in Significant Malicious Cyber-Enabled Activities”, is a relic from the Obama administration. 

Just like the famous Patriot Act, E.O. 13694 is a government action which purports to protect Americans and National Interests, but instead limits digital freedom and personal responsibility. 

By repealing an action born from this executive order, the U.S. appeals court has shown the ability to adapt to a changing digital landscape.

What Happens Next…

In February 2025, Alexey Pertsev was released from a Dutch prison after being sentenced to 64 months in 2024. His early release appears to be influenced by a shift in regulatory perspectives in the USA, prompting a reevaluation in other Western countries.

However, the Southern District of New York continues to pursue an active case against Pertsev and co-founder Roman Storm.

The ability for average users to access Tornado Cash is a significant step, but true victory requires that developers also be liberated from political persecution. Only then can the broader community fully celebrate.