Source: Liu Jiaolian

BTC continued to trade sideways near 95k overnight. As mentioned last night, the U.S. Fifth Circuit Court ruled on Wednesday in the case of OFAC (U.S. Treasury Department’s Office of Foreign Assets Control) sanctions against Tornado that “immutable smart contracts” on the blockchain cannot be sanctioned under current laws.

This is a moment when the spirit of the rule of law is full of light. This is a great victory of decentralization over traditional law.

To understand the significance of this ruling, we need to first understand: What is blockchain? What is a smart contract? What is an immutable smart contract? What is a tornado?

As we all know, the blockchain is an automatic accounting system independently maintained by many unspecified entities. These independent entities are not affiliated with the same company or organization, but do their own thing, even scattered around the world, lacking central unified control. This highly loose collaboration among people is called “decentralization.”

This method of collaboration is the product of human civilization evolving to an advanced stage, starting with the invention of Satoshi Nakamoto in 2008 and the launch of the Bitcoin system in 2009. Prior to this, all large-scale human cooperation, from small companies to large companies, was centralized. In the centralized model, the background to ensure cooperation is "violence", or "top-down coercion," which can also be called "legitimate right to harm."

See the subtleties and tell the story. Think about it, why are you always cautious when working at work, for fear of offending your boss and being judged? Essentially, because the leader, as your superior, has the legal right to harm you. Although the leader may not necessarily use this power against you, it is like the sword of Damocles always hanging over your head, making you nervous and trembling all the time. After being domesticated for a long time, you will subconsciously look up to the authority of the leader, obey the leader's instructions, and even develop Stockholm syndrome, feeling grateful for the leader's reward for giving you a bite of food.

Why do subordinates of the opposite sex sometimes give in to their leaders in the workplace? In essence, it is the overall mental and physical exploitation of subordinates by superiors caused by the centralized power structure.

Therefore, decentralization is nothing less than another great liberation of the human spirit and even the body. In a truly decentralized system, there is no leadership, no authority (or authoritarianism), no violence, no oppression, and no legitimate harm. Here, everything depends on your volition, autonomy and spontaneity. Here, no one can force you to do anything. Here you gain the highest form of freedom - the freedom to say "no".

It is the highest form and largest collection of violence that human civilization has ever constructed. Sectors are the instruments through which this powerful collective violence is carried out, externally and internally. Traditional law is a tool instruction manual.

The United States is currently one of the most powerful countries on earth. What this means is that it possesses the most powerful and ferocious violence on earth. OFAC, the full name is Office of Foreign Assets Control, and the Office of Foreign Assets Control of the U.S. Department of the Treasury is a department of the United States. The department is responsible for enforcing economic and trade sanctions related to U.S. security and foreign affairs. Its sanctions are mainly targeted at entities or individuals outside the United States that pose a threat to the United States.

Tornado, whose English name is Tornado Cash, is a set of smart contract codes running on the Ethereum blockchain. The function of this set of smart contract codes is to mix the entered digital currencies into one pot, and then scoop them out separately and put them into each person's bowl. This is called "coin mixing." Obviously, the "coin mixing" function has a natural illegal purpose-money laundering.

So, what is a smart contract? Smart contracts are actually computer codes, or computer instructions. Unlike traditional codes that run on ordinary computers or servers (clouds), smart contracts are computer codes that specifically run on the blockchain.

What is the difference between running on the blockchain? We mentioned above that the characteristic of blockchain is decentralization. Once these codes are deployed on the blockchain, they cannot be modified (even if there are bugs, they cannot be withdrawn or corrected, and you can only watch it go wrong), and you cannot restart or interfere with its operation at will, even for the initial development. Neither can the developer or deployer - technically speaking, of course, unless the developer leaves "backdoor" code in the code specifically designed to control the smart contract.

So, we will understand here, ifThe blockchain used is a truly decentralized blockchain (rather than a pseudo-blockchain controlled by a company), then smart contracts running on the blockchain can be divided into two categories: < /p>

One ​​type is smart contracts with backdoor control. This is a mutable smart contract.

The vast majority of smart contracts operated by a company behind them have various backdoors. For example, in USDT’s smart contract, Tether has the “backdoor” authority to freeze assets at any address. Another example is that almost all smart contracts across chain bridges are so-called "upgradeable smart contracts". The development team behind them has a special "backdoor" that can change the contract logic at any time.

The other type is a smart contract without any control backdoor. This is what we originally called "immutable smart contracts".

Examples in this area need to be carefully selected. Because to be honest, in the blockchain field, teams that are so "fastidious" in doing things can be said to be extremely rare! The teaching chain gives three examples:

The simplest example is WETH. This smart contract is immutable once deployed, and no one has control over the contract.

The second example is Uniswap. Although there is a company behind Uniswap, Uniswap Labs, this team is very particular about what they do. You see, V1 V2 V3 V4 has to be redeployed every time a new version is launched. This is because if you look at its open source code, you will know that it is implemented as an immutable smart contract and cannot be upgraded in place. As for the control of the fee switch inside, it is handed over to the governance contract and jointly controlled by the community, thus eliminating the last single point of control.

The third example is the protagonist of today’s story: Tornado Cash.

In August 2022, the U.S. Department of the Treasury was suspected of assisting in completing more than $7 billion in illegal transactions (including with North Korea’s “Lazarus Group”). "related funds) and imposed sanctions on it.

In August 2023, two developers of Tornado, Roman Storm and RomanSemenov was indicted on suspicion of money laundering and sanctions violations. 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 sanction smart contract does not stop the operation of the code, but indiscriminately harms all those related to it - arrest developers and required all exchanges to freeze and ban all user funds from Tornado.

For example, a gangster stabbed someone with a kitchen knife, so OFAC arrested Wang Mazi and Li Xiaoer, who produced the kitchen knives. , and then notify the whole society to confiscate the kitchen knives in everyone's hands.

So some users became angry. Out of anger, a "citizen prosecutor" came and took the U.S. Treasury Department to court.

In September 2023, Joseph Van Loon and other plaintiffs filed an appeal challenging the Tornado sanctions imposed by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC).

The plaintiffs argue that OFAC’s treatment of Tornado’s immutable smart contracts as sanctionable “property” exceeds its authority under the International Emergency Economic Powers Act. (IEEPA). The appeal follows a district court ruling in favor of OFAC's action.

The time has come now. In November 2024, the U.S. Fifth Circuit Court ruled that the Treasury Department exceeded its authority by sanctioning Tornado’s immutable smart contract.

The Fifth Circuit held that when smart contracts are immutable—that is, no entity can modify or control them—they cannot be modified under existing law. Classified as "property" subject to sanctions.

The court noted that the immutable smart contracts involved in this case "are not property because they cannot be owned."

This ruling overturned the lower court's decision and was regarded by industry authorities as an important victory for privacy advocates and blockchain developers, providing a platform for development Similar products provide clear legal guidance.

Of course, variable smart contracts with backdoor control still risk facing sanctions. OFAC canYou can choose to sanction the person or company that controls the smart contract.

One ​​small step for a tornado, one giant leap for mankind.

We also have a deeper understanding of the importance of "giving up control" from this case.

Satoshi Nakamoto has long been aware of the situation and has been ready to give up all control over the Bitcoin system from the beginning. He even gave up all influence in reality and chose to become an eternal legend.

The Uniswap team, or its founder Hayden Adams, also deeply understands the core essence of this decentralization, so when building the system, it is well done Design in place.

The systems I deliver continue to function even when I am gone.

If I am gone, each of you will be me.

This is the greatest value of decentralization.

Reference materials:

- [1] https://decrypt.co/293758 /fifth-circuit-rules-ofac-overstepped-sanctioning-tornado-cashs-immutable-smart-contracts