Largely untapped markets such as global remittances represent a huge opportunity for Bitcoin, but the digital currency has not yet arrived at its most difficult stage of development, BitInstant founder Charlie Shrem said at this past weekend’s Bitcoin 2013 conference in San Jose.

“Global remittance is one thing that Bitcoin can do really well,” Shrem said, giving the example of a nurse working in the US who wants to send most of her pay back to family in the Philippines. Using a money transfer service such as Western Union, the nurse would have to pay a large fee and wait a week for the money to arrive.

“That doesn’t make sense,” Shrem said. If more foreign workers adopted Bitcoin, they would be able to safely and instantly send money home to families at low costs, he said.

Shrem’s optimism for the potential of Bitcoin, which he refers to as “cash with wings,” is tempered by the difficult fights with regulators he expects lie ahead. At this point, he said, Bitcoin is at the stage where more people have heard of it, but most people dismiss it as something silly. This, Shrem said, is not the scary stage.

“The scary stage is the fighting stage,” he continued. “That’s when we’re going to see regulators coming down hard …. Look what happened with Mt. Gox.” (The US Department of Homeland Security last week seized funds from Mt. Gox, the world’s largest bitcoin exchange, and Dwolla, alleging that Mt. Gox and a subsidiary were operating as unlicensed money transmitting businesses.)

To survive the fighting stage, Bitcoin companies will have to work hard to comply with regulations, Shrem warned.

“You have to know your customer,” he said. “Anyone doing anything in the bitcoin space, you have to know your customer. It’s a very big problem when you have someone trying to start a bitcoin company saying, ‘I’m going to let anyone use my system and have a nice day.’ ”

Shrem continued, “Whether you agree with the regulations or not, you have to follow them.” Or, he added, try to change them.

Shrem credited the crowd at Bitcoin 2013 for understanding the true nature of the digital currency better than those who are just now hearing about it.

“An issue that I have found, explaining Bitcoin to people, is they assume it’s this anonymous currency that’s used by drug dealers and terrorists, blah blah blah,” Shrem said. “A lot of us know that’s not true. A lot of us have startups which are trying to take Bitcoin and make it mainstream.”

Bitcoin can provide privacy in transactions but is not inherently anonymous, he said.

Shrem touched on a number of other topics during his talk:

On Bitcoin creator Satoshi Nakamoto: “Satoshi built this amazing product and then he disappeared. I don’t know why he disappeared but … (I think he wanted it to grow organically).”

On BitInstant’s “Know Your Customer” verifications (noting that, if customers provide a Social Security Number or other identification, they can get higher daily limits): “It’s more like, ‘You trust us, we trust you.’ … A lot of regulators frowned on that, but I said it’s going to work, and it has been working so far.”

On Ripple: “I think Ripple is extremely complementary to Bitcoin. It has this good infrastructure. It’s a little complicated … It’s a value transfer system.”

On the security of Bitcoin: “Bitcoin is a protocol. I hate when people tell me Bitcoin was hacked. I send them an article about how $45 million was stolen from an ATM machine — the dollar was hacked!”

On the US Financial Crimes Enforcement Network’s recent Bitcoin guidance: “It’s important that that happened for a few reasons, because it shows that it’s on the radar, they see it, they’re not automatically going to come down on it hard … That FinCen guidance that came out said, people who hold bitcoin, they’re OK, they’re not going to jail … but at the same time, companies like mine need to be super careful.”

(Shrem noted that FinCen was also giving a free pass to the states to start regulating Bitcoin when they said Bitcoin companies are money transmitters.)

“There’s so much regulation that I feel like it’s pushing down innovation,” Shrem said, adding that — while it’s important to have regulations for the protection of consumers — it would be nice if regulations were standardized so businesspeople like him did not have to get fingerprinted again and again to comply with every state’s requirements.