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Bitcoin and sanctions

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The intersection of Bitcoin and sanctions regimes is one of the most-contested aspects of Bitcoin policy. Three structural dynamics shape the landscape: OFAC address sanctions (the US Office of Foreign Assets Control has designated addresses tied to Tornado Cash, specific entities, and sanctioned individuals, creating compliance obligations for US-person actors); pool-level block-template censorship (some US-aligned mining pools exclude OFAC-sanctioned transactions, producing partial censorship that typically affects low single-digit percentages of blocks); and sovereign bypass (sanctioned sovereigns — Russia, Iran, North Korea — accumulating Bitcoin via mining or holdings produces structural bypass capability the existing regime has not fully addressed). The Tornado Cash precedent — 2022 OFAC sanctions on the protocol, 2024 criminal charges against developers, the 2024 Fifth Circuit reversal, and the March-2025 OFAC delisting — set the leading-edge precedent for enforcement against privacy-preserving tools and developers. Substantive event-level engagement lives in Tornado Cash sanctions and the privacy-tool regulatory landscape (Controversies).

Why this note matters

The Bitcoin-and-sanctions interaction is the principal point of tension between Bitcoin’s structural properties (decentralized, censorship-resistant, pseudonymous) and the sovereign-policy use of sanctions as a foreign-policy tool. Understanding how sanctions enforcement actually works (and doesn’t work) in the Bitcoin context is the precondition for engaging the broader Bitcoin-and-state-policy landscape.

This note treats the policy-framework dimension; substantive event-level engagement with specific sanctions cases (Tornado Cash particularly) is in Tornado Cash sanctions and the privacy-tool regulatory landscape (Controversies). The privacy-tool operational dimension is in the Self-custody privacy-practice cluster.

OFAC sanctions framework

The US Office of Foreign Assets Control (OFAC) administers economic-and-trade sanctions based on US foreign-policy and national-security goals. The principal Bitcoin-relevant frameworks:

Specially Designated Nationals and Blocked Persons (SDN) List. Individuals, entities, and increasingly specific cryptographic addresses designated as “blocked” — US persons are prohibited from transactions with these. Bitcoin addresses appear on the SDN list when associated with sanctioned individuals or entities.

Sectoral Sanctions Identification (SSI) List. Sanctioned sectors of specific countries; less directly relevant to Bitcoin but applies to certain mining-related operations in sanctioned countries.

Country-specific sanctions programs. Comprehensive sanctions against Iran, North Korea, Syria, Cuba, and Russia (partial post-2022); Bitcoin-related operations involving these countries face compliance obligations.

Specific Bitcoin-address designations. OFAC has designated specific Bitcoin addresses as sanctioned in connection with:

  • Tornado Cash (August 2022; specific addresses associated with the smart-contract protocol)
  • Specific sanctioned individuals (various criminal-investigation related addresses)
  • Specific entity-controlled addresses (entities themselves on the SDN list)

The compliance obligation. US persons (citizens, residents, US-incorporated entities) are prohibited from transactions with OFAC-sanctioned addresses. The compliance burden flows through to:

  • Centralized exchanges (must screen transactions)
  • Bitcoin custodians (must screen holdings)
  • Mining pools (must screen block-template inclusions)
  • Bitcoin-related software services
  • Individual users (technically prohibited from transactions with sanctioned addresses but enforcement is limited)

Pool-level censorship

The most-direct sanctions-vs-Bitcoin tension occurs at the mining-pool block-template construction layer:

The structural mechanism. Pool operators construct block templates — they choose which transactions to include in candidate blocks. A US-aligned pool operator under compliance obligation can exclude OFAC-sanctioned-address transactions from its block templates; non-compliant pools include them.

The empirical landscape. As of 2026, several US-based pool operators implement varying levels of OFAC-block-template-compliance:

  • Compliant pools (typically larger US-based operators) exclude OFAC-sanctioned-address transactions
  • Non-compliant pools (typically non-US operators or specifically-anti-censorship US pools like OCEAN) include all transactions
  • The fraction of blocks excluding OFAC transactions has hovered in the low single-digits percentage range

The economic incentive against compliance. Excluding transactions from blocks means foregoing the transaction fees those transactions would have paid. For high-fee periods, this is non-trivial revenue. Most non-US pool operators have economic reasons to include all transactions; compliance is operationally costly.

The Stratum V2 dynamic. Stratum V2 (gradually deploying since 2022) allows miners to construct their own block templates rather than receiving them from the pool. As Stratum V2 adoption grows, individual miners increasingly determine inclusion policies; pool-operator-level censorship becomes less effective.

The structural conclusion. Pool-level censorship is operationally limited (low percentage of blocks affected); economically disincentivized (fee-revenue loss); and architecturally erodible (Stratum V2 deployment shifts template construction). The structural concern remains real but the empirical magnitude is limited.

See Mining pools for the operational treatment of the pool dynamics and the Stratum V2 template-construction shift.

The Tornado Cash precedent

The Tornado Cash case (August 2022 onwards) established the leading-edge legal-and-policy precedent for sanctions enforcement against privacy-preserving cryptocurrency tools and their developers:

The OFAC designation (August 2022). OFAC designated the Tornado Cash protocol’s specific smart-contract addresses as sanctioned. The designation rationale: alleged use of the protocol for laundering proceeds from North Korean state-affiliated hacking (Lazarus Group).

The criminal charges (April 2024). Tornado Cash developers Alexey Pertsev and Roman Storm were criminally charged with conspiracy to commit money laundering and operating an unlicensed money-transmitting business. Pertsev was convicted in the Netherlands in 2024; Storm’s US case proceeded.

The Fifth Circuit ruling (November 2024) and the 2025 delisting. A Fifth Circuit Court of Appeals panel ruled that the OFAC sanctions on Tornado Cash’s smart-contract code exceeded OFAC’s statutory authority — specifically, that immutable smart-contract code cannot be “property” under the relevant statute. Rather than appeal, OFAC formally delisted Tornado Cash in March 2025, ending the sanctions. The separate criminal cases against the developers continued on money-transmission and conspiracy theories (not the sanctions listing) — the Samourai founders pled guilty in 2025 and Roman Storm was convicted on a money-transmission count with a mistrial on the graver charges; see the controversy note.

The implications for Bitcoin specifically. The Tornado Cash precedent has been substantively influential on Bitcoin privacy-tool regulation:

  • Wasabi Wallet (Zksnacks) ceased serving US users in 2024 in response to regulatory pressure
  • Samourai Wallet developers faced criminal charges
  • The broader CoinJoin-and-Bitcoin-privacy-tool landscape has faced increased regulatory scrutiny
  • Software-development-as-sanctioned questions have substantial implications for open-source Bitcoin development

Substantive engagement is in Tornado Cash sanctions and the privacy-tool regulatory landscape (Controversies).

Sovereign sanctions-bypass dynamics

Bitcoin’s structural properties create specific sanctions-bypass scenarios:

Sanctioned-sovereign accumulation. Sanctioned sovereigns (Russia, Iran, North Korea historically) can accumulate Bitcoin via mining or holding. Mining is operationally feasible within sovereign borders; holding does not require interaction with sanctioned financial infrastructure. This produces a structural ability to accumulate value outside the dollar-system sanctions architecture.

Sanctioned-sovereign payment-rail use. Bitcoin and especially Lightning provide cross-border payment-rail infrastructure that operates outside the SWIFT-and-dollar-correspondent-banking infrastructure that traditional sanctions enforcement relies on. The mechanism is not foolproof — exchange-and-fiat-conversion points remain enforcement targets — but the structural capability is real.

The empirical magnitude. Bitcoin-related sanctions-bypass at meaningful scale is technically feasible but has not been the primary mechanism for sanctioned-sovereign value transfer at substantial scale. Traditional channels (front companies, non-sanctioned currencies, gold, etc.) remain dominant. The Bitcoin-specific concern is structural rather than currently-empirically-dominant.

The international-coordination challenge. Effective Bitcoin sanctions enforcement requires international coordination — non-US pools, non-US exchanges, non-US infrastructure operators must implement compatible compliance. This coordination has been imperfect; the result is sanctions-effectiveness leakage in Bitcoin contexts.

The Strategic-Bitcoin-Reserve and dollar-system tension. A sanctioned sovereign accumulating Bitcoin as Strategic Reserve (which is operationally feasible) creates direct structural pressure on the dollar-system-based sanctions regime. The US Strategic Bitcoin Reserve framework operates partially in this competitive space — domestic Strategic Reserve provides leverage against sanctioned-sovereign Bitcoin accumulation.

Counter-arguments and tensions

Privacy-vs-sanctions-enforcement tradeoff. Bitcoin’s pseudonymity and self-custody properties are simultaneously legitimate user-privacy features and sanctions-enforcement-evasion vectors. Frameworks that aggressively pursue sanctions enforcement risk overriding legitimate privacy; frameworks that prioritize privacy risk inadequate sanctions enforcement.

The Tornado Cash precedent’s reach. The smart-contract-as-property framework, even after the Fifth Circuit ruling, has substantial implications for Bitcoin software development. Critics argue that prosecuting developers for writing code chills legitimate development; defenders argue that knowingly facilitating sanctions evasion is properly criminalized.

Pool-level censorship as compromised-network-resistance. Bitcoin’s design philosophy treats transaction inclusion as economic rather than political — miners include transactions that pay fees, regardless of identity. Pool-level OFAC compliance creates political transaction-inclusion criteria; this is a structural departure from the design philosophy.

The sovereign-Bitcoin-policy competitive dynamic. The US Strategic Bitcoin Reserve and the broader Bitcoin-as-strategic-asset framing operate partially in tension with traditional sanctions enforcement. A US-sanctioned country accumulating Bitcoin while the US also accumulates Bitcoin produces awkward competitive dynamics that traditional sanctions architecture didn’t anticipate.

International-coordination shortfalls. Effective Bitcoin sanctions enforcement requires non-US jurisdictions to implement compatible frameworks. This coordination has been imperfect; the result has been a sanctions-effectiveness landscape where compliant US infrastructure operators bear compliance costs while non-compliant non-US operators don’t.

Open questions for further development

  • How does the Tornado Cash precedent evolve post-delisting? With the sanctions lifted (OFAC delisting, March 2025), the live question has shifted from sanctions to developer liability under money-transmission law (§1960); broader doctrinal evolution is uncertain.
  • What is the long-run trajectory of pool-level OFAC compliance? Stratum V2 deployment, pool competition, and operator decisions all shape this.
  • How does international sanctions coordination evolve? Multilateral frameworks for Bitcoin-related sanctions enforcement are emerging but uneven.
  • How does the Strategic-Bitcoin-Reserve framework interact with sanctioned-sovereign accumulation? The competitive dynamic is unsettled.
  • What is the appropriate Bitcoin-software-developer treatment under sanctions law? The Tornado Cash precedent has substantial implications; the broader framework is contested.

Canonical sources for this note

  • OFAC Specially Designated Nationals List: treasury.gov/ofac
  • Tornado Cash case docket (US v. Storm; Netherlands v. Pertsev) — public court records
  • Fifth Circuit ruling on Tornado Cash sanctions (November 2024)
  • Coin Center sanctions analysis: coincenter.org
  • Bitcoin Policy Institute sanctions-policy analysis
  • Chainalysis Crypto Crime Report — empirical engagement (industry-aligned framing)
  • Various academic legal scholarship on cryptocurrency sanctions
  • Treasury and Justice Department public guidance on cryptocurrency sanctions

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