Why the First Amendment Defense Is Gaining Ground in Crypto Appeals

First Amendment as Core Defense: The legal strategy pivots from debating the Howey Test to asserting that code, transactions, and token distributions are protected speech. This reframes the debate from 'Is it a security?' to 'Can the SEC regulate this speech?'.

Precedent in Code: This argument builds on cases like Bernstein v. Dept. of Justice, which established code as speech. Projects like Tornado Cash and LBRY now argue their smart contracts and protocol documentation are expressive, not just financial instruments.

Regulatory Overreach Narrative: The defense paints the SEC's actions as a content-based restriction on a new form of digital publishing. This positions the agency as censoring the development of open-source software like Ethereum or Bitcoin.

Evidence: The amicus briefs in the Coinbase and Ripple cases now feature constitutional scholars, not just economists. This signals a deliberate, high-stakes shift in legal tactics for the entire industry.

Code is speech under established Supreme Court precedent, a principle now weaponized against the SEC's enforcement-by-settlement model. This legal strategy forces courts to rule on the constitutional status of software, not just its financial function.

The Tornado Cash brief argues that publishing privacy-preserving smart contracts is no different than publishing a book on cryptography. This reframes the debate from 'unlicensed money transmission' to a fundamental speech act, creating a higher legal barrier for regulators.

This defense neutralizes the Howey Test by separating the creator's expressive intent from a user's speculative intent. A protocol like Uniswap or Compound publishes open-source code; subsequent token trading is a user's independent action, not the promoter's 'investment contract'.

Evidence: The amicus brief from the Blockchain Association and DeFi Education Fund in the Tornado Cash case anchors this argument in legal history, citing cases like Bernstein v. Dept. of Justice where encryption code was ruled protected expression.

Code is speech is the foundational legal doctrine. The 1996 Bernstein v. Department of Justice case established that cryptographic source code is protected expression under the First Amendment. This precedent directly applies to smart contract logic and protocol designs, treating them as publishable ideas rather than mere tools.

The Tornado Cash indictments forced the issue into crypto's core. The DOJ's argument that developers created an unlicensed money transmitter conflates protocol deployment with active money transmission. The defense counters that publishing autonomous, immutable code is an act of publication, not an ongoing service, drawing a line between creation and operation.

This defense strategy expands beyond money transmission charges. It now challenges the SEC's application of the Howey Test to code. The argument asserts that publishing open-source software, like the Uniswap protocol or an L2 sequencer design, is a protected act of disseminating functional information, not an unregistered securities offering.

The Coin Center and EFF are leading this litigation frontier. Their amicus briefs and direct lawsuits frame regulatory actions as prior restraints on publication. A favorable ruling would establish a developer safe harbor, protecting the act of releasing non-custodial, permissionless code while leaving operators of centralized fronts like FTX subject to existing law.

Code is speech. The SEC's 'function over form' test fails because it ignores the expressive nature of software. Smart contracts like Uniswap's v3 Core are functional and constitute a developer's published methodology, which is protected speech.

The Howey Test is misapplied. The SEC argues token sales are investment contracts. The defense counters that secondary market sales of fully functional assets like ETH lack a common enterprise, severing the legal tether required by Howey.

Precedent favors innovation. The Supreme Court's Bernstein ruling established that software source code is protected speech. This directly undermines the SEC's attempt to regulate the dissemination of protocol code as a securities offering.

Evidence: In the Coinbase appeal, Judge Failla questioned the SEC's logic, noting a token is not inherently a security, creating a circuit split that the Supreme Court will likely resolve.