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A significant legal victory for the cryptocurrency community unfolded as a U.S. federal appeals court overturned sanctions imposed by the U.S. Treasury Department on Tornado Cash, a service that anonymizes crypto transactions. This landmark ruling has put an end to a contentious debate over the extent of government authority in sanctioning technology associated with criminal activities.

The federal appeals court determined that the U.S. Treasury did not possess the necessary legal grounds to classify the underlying technology of Tornado Cash as a sanctionable entity. As a result, Tornado Cash's native token, TORN, experienced an unprecedented surge, climbing over 500% within hours of the decision, as reported by CoinGecko.

The court's decision on Tuesday reverses an earlier ruling by a district court in August, which had supported the government's stance against what it had described as a "notorious" crypto-mixing service. This previous ruling by the lower court had led to public outcry and intense debate within the crypto community regarding privacy rights and government overreach.

In its ruling, the U.S. Court of Appeals for the 5th Circuit highlighted that Tornado Cash's smart contracts—software code lines designed to ensure privacy—cannot be considered the property of any foreign national or entity. This distinction meant they could not be sanctioned under the International Emergency Economic Powers Act. Consequently, the court concluded that the Treasury's Office of Foreign Assets Control (OFAC) had exceeded its regulatory authority.

Previously, OFAC had blacklisted Tornado Cash in an attempt to curb its use by criminal elements, including the North Korean hacking group Lazarus, known for laundering stolen cryptocurrency. Coinbase and other entities had challenged this sanction, arguing that the government had overreached its bounds.

Paul Grewal, Chief Legal Officer for Coinbase, lauded the court's decision, describing it as a historic triumph for the crypto industry and individual privacy rights. Sharing his thoughts on social media platform X, Grewal emphasized the importance of defending liberty against governmental overreach and the implications of the ruling.

The appeals court's judges acknowledged the challenges posed by navigating legislation written in a pre-digital age. They pointed out that while they understood the potential real-world negative impacts of technology outside OFAC's control, their role was to enforce the existing laws as constituted by Congress, not to reinterpret them.

In the wake of this legal win, Tornado Cash's TORN token rebounded sharply, surpassing $20 in value, compared to its sub-$8 price range in mid-2022 when the protocol had been sanctioned, and its founders faced legal issues.