Imagine if a government put out a series of questions that the public could respond to, garnered responses from across a community, listened to them, and then actually enacted sensible tech policy. Sounds like a dream, right? Well that’s exactly what the UK just did.

Last week the UK announced the results of its extensive inquiry on bitcoin and digital currencies, and so far, the results seem both fair and reasonable.

One major conclusion is that the UK will apply AML (anti money-laundering) regulation to digital currency exchanges, with the details to be determined by the Parliament in the forthcoming session. The US, by contrast, already imposes such requirements on exchanges plus other digital currency companies via FinCEN and the Bank Secrecy Act. The UK government will also work to ensure that law enforcement has the tools it needs to stamp out criminal uses of digital currencies.

But the even bigger part is what’s missing: no licensing regime for digital currencies.[1] No arduous process for startups and small businesses. No policies that give an advantage to big institutions over up-and-coming innovators.

In fact, the British government decided that what is most appropriate is to work with the digital currency community to develop a set of best practices for consumer protection and create a voluntary, opt-in regime. This approach was chosen “in order to address the risks identified but without imposing a disproportionate regulatory burden on the industry.” And because it recognizes the substantial promise that digital currency technology has to offer, the government will devote GBP 10 million (approximately US$15M) in an annual budget for research in the space, including the newly-formed Alan Turing Institute.

The report reads like a breath of fresh air, with an honest assessment of the current low likelihood of use by major criminal enterprise, and acknowledgements of the risk of regulating too much, too soon. It even summarizes the belief that New York’s proposed BitLicense is an overly restrictive approach that could damage the industry.

The UK’s approach differs from that of New York in several ways, including that the UK chose to analyze first and propose later. While NY did hold hearings in advance of releasing its regulations, it still to this date has failed to release a summary of its research and rationale for requiring strong digital currency regulation, despite its legal requirement to do so. And New York’s regulations require permission to innovate via licensing, whereas the UK’s proposal takes a different and far more innovation-friendly tack.

The UK digital currencies report acknowledged that market participants are addressing some of the risks in the space, and singled out exchanges as a special category, instead of New York’s overly broad “virtual currency business activity” that encompasses everything from microtipping services to launching a protocol for a new currency. (As an aside, New York has claimed it won’t regulate “software developers,” but what it actually means is it won’t regulate software developers as long as they aren’t developing the software covered by its proposed law.)

Some London-based entrepreneurs I spoke to reacted with uncertainty about the effect that overly burdensome anti money-laundering regulations could have, and this is yet to be determined. But in the end, a regime in which one does not need permission to innovate, but instead has a reasonable set of rules to abide by, bodes far better for building the future of technology.

Basically, the UK just became the anti-NY. And the innovation will flock to the places with smart, sensible policies that allow for permissionless innovation.

[1] For companies that deal with consumer funds in GBP, Euro, or other “fiat” currencies, they’ll likely still need to be registered with or authorized by the government.

California, the state that prides itself as the birthplace of modern technology and whose policies such as the unenforceability of non-competes contributed substantially to the innovation ecosystem, recently proposed a law that requires innovators to get permission from the state, or be banned.

Last week CA’s State Assembly announced AB 1326, a bill that would ban any unlicensed bitcoin or cryptocurrency business activity. It would “prohibit a person from engaging in this state in the business of virtual currency, as defined, in this state unless the person is licensed by the Commissioner of Business Oversight or is exempt from the licensure requirement.” Banks, financial institutions, and governments would be exempted under the law, making it even harder for a startup to compete. Worse yet, the bill doesn’t even define what “the business of virtual currency'” means, making it both overly vague and counter to the very nature of the trustless, permissionless innovation that bitcoin and blockchain technology enable. So right now, if you’re building multisignature technology to better enable people to secure their bitcoin, or developing an open source peer-to-peer remittance app that connects users to send each other bitcoin, the state of CA could very well ban you from operating unless you’ve received a license.

So for the next wave of entrepreneurs building technology in the bitcoin or blockchain space, the state is poised to say that in order to start your company or release your technology, you must pay $5000 for a license and tens or hundreds of thousands in legal and compliance fees, not to mention requirements such as informing them of your educational background and 10 years of past addresses. That might be awkward for the 21 year old college dropouts working on a cryptocurrency startup. And of course there’s no guarantee the state will actually grant the license, or shall we say, permission.

I wrote last summer about the problematic approach that NY state is taking with its proposed BitLicense, an attempt to make virtual currency entrepreneurs demand permission from the state to innovate, and how the even greater danger was that other states would follow suit. I expected a more innovation-friendly approach from California, but this bill may prove me wrong.

The cryptographic technology behind bitcoin itself has tremendous potential to enable more transparency (proof of solvency, real time continuous auditing), and security (multisig, threshold encryption), providing compelling solutions to public policy concerns that licensing regimes only attempt to address. The assumption that the analog-world model of licensing must fit this new and fast-evolving space is ignorant at best and dangerous at worst.

California can and should do better. It can craft policies that enable entrepreneurs to innovate and encourage them to implement good practices on security and consumer protection without requiring licensing and permission. And if California won’t do it, there are many other jurisdictions that will. Australia, UK, and Singapore, to name few, are all looking to implement policies to be the crypto Silicon Valley.

Tomorrow, I and others will be discussing the development of cryptocurrency and blockchain policy at the Copia Inaugural Summit. The future viability of this important ecosystem depends on getting it right — so we need everyone to make themselves heard as the debate moves forward.