Legal Precedent Upholds First Amendment Protection for Code, Highlighting Regulatory Challenges in the Decentralized Internet

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Legal Precedent Upholds First Amendment Protection for Code, Highlighting Regulatory Challenges in the Decentralized Internet

The recent inclusion of Tornado Cash on the U.S. Department of the Treasury's sanctions list has raised concerns within the crypto community. Swarm, a decentralized exchange based in Berlin, argues that this move is unconstitutional and constitutes regulatory overreach. They point to a 1996 federal court ruling that established "source code as speech," meaning that code is protected under the First Amendment. By sanctioning Tornado Cash's code, regulators may have disregarded this legal precedent. However, the authorities claim that Tornado Cash facilitated money laundering and violated financial regulations, while its decentralized nature makes it difficult to control. Despite the removal of the code from platforms like Github, it remains accessible on the Ethereum Blockchain. The arrest of one of Tornado Cash's developers, Alexey Pertsev, has further complicated the legal implications of code creation. Furthermore, the decentralized infrastructure of permissionless protocols poses challenges in identifying and penalizing users accurately, often leading to unintended consequences such as blocking innocent individuals. As the DeFi space faces increased regulatory scrutiny, striking a balance between compliance and privacy is crucial for its future development. Compliance-focused ventures like Swarm believe that engaging with regulations positively will restore confidence in the DeFi sector and pave the way for institutional involvement and global coordination in the future.