A Landmark Ruling on Crypto Code and Free Speech
A recent ruling by a federal judge in the United States has sparked significant debate surrounding the classification of software code related to cryptocurrency protocols, specifically concerning First Amendment protections. The judge concluded that code utilized in various crypto systems, such as Tornado Cash, does not receive coverage as free speech under the First Amendment.
The Ruling and Its Implications
Judge Katherine Polk Failla of the Southern District of New York issued this critical decision on September 26. The ruling establishes a potentially transformative precedent that could classify certain crypto protocols as money transmitters, irrespective of whether the developers maintain control over the transmitted funds.
This ruling carries extensive implications for the cryptocurrency realm, particularly affecting the upcoming trial of Tornado Cash developer Roman Storm, set for December 2. Storm is facing several serious charges, including money laundering, operating an unlicensed money transmission service, and evading US sanctions.
Arguments and Judicial Findings
Storm’s defense argued that his development work on the Tornado Cash platform should be protected as a form of free speech. However, Judge Failla countered this assertion, clarifying that while certain uses of code can be creative or expressive, employing code for money transmission does not satisfy free speech protections.
Legal Perspective on Fund Control
The ruling has broad ramifications in ongoing legal considerations surrounding blockchain technologies, particularly in cases involving Tornado Cash and Samourai Wallet.
Prosecutors maintain that both platforms function as unlicensed money transmitters, particularly under US sanctions laws, which have been under scrutiny due to allegations of their roles in facilitating cybercrime and sanctions evasion.
Judge Failla emphasized that direct control over funds is not a requisite condition to be classified as a money transmitter under the Bank Secrecy Act (BSA).
The court sided with the prosecution’s viewpoint that operations like Tornado Cash and Samourai Wallet can indeed meet the criteria for money transmission, despite not controlling the actual funds involved.
Anticipated Trial and Appeals
Storm’s trial is set to commence on December 2, where the charges from the US government will be put forth. His legal team has suggested plans to appeal the ruling, as this case holds the potential to drastically change the accountability frameworks for blockchain developers under US law.
Industry Reactions to the Ruling
The ruling has not gone unnoticed, drawing criticism from various sectors within the crypto industry. Legal representatives, such as DeFi Education Fund chief legal officer Amanda Tuminelli, expressed dismay, asserting that it could lead to unprecedented expansions of developer liability. Tuminelli stated:
“The consequences of this trial will be life-changing for Storm and potentially for software developers across industries.”
Similarly, Variant chief legal officer Jake Chervinsky criticized the ruling, describing it as a dangerous precedent for software creators. He remarked:
“Judge Failla’s ruling is an assault on the freedom of software developers everywhere. This will be remembered as a perversion of law and a travesty of justice.”
Looking Ahead
Despite the backlash, the ruling provides much-needed clarification on whether crypto enterprises can assert immunity from BSA regulations when they do not exert control over transmitted funds. This ruling may also assist regulators and lawmakers as they attempt to impose traditional financial laws on the rapidly evolving world of cryptocurrency.
With appeals on the horizon, further legal clarifications are anticipated as this landmark case progresses.