Bitcoin has enjoyed a rocky ride since the peer-to-peer system first emerged in 2008 at the hands of an anonymous creator, or group of creators, known as Satoshi Nakamoto.

Bitcoins can be “mined” online by programmers who sift through reams of data to solve mathematical problems and help verify past transactions; the currency can then be traded for goods and services.

WATCH: How blockchain could change finance

The cryptocurrency made headlines in 2014 after bitcoins worth more than US$400 million disappeared from the Tokyo-based Mt. Gox bitcoin exchange. About half have since been recovered.

Worse was still to come as the community overseeing bitcoin experienced a civil war last year that has left its future in doubt as its chief programmers split into rival camps.

This culminated in January when longtime bitcoin developer Mike Hearn declared it a failed experiment and resigned from the community. He also expressed his anger at how the blockchain is currently being “controlled” by Chinese miners bagging all the bitcoins.

But all the negative press has not deterred authorities in Hong Kong from looking at the technology underpinning the cryptocurrency, which has much broader potential applications.

Interest in this is growing partly because the blockchain records transaction data in a way that prevents duplications and lowers the risk of certain kinds of fraud. Logged entries, for example, cannot subsequently be rewritten or the dates changed.

Beyond its applications in the banking industry, the technology can be harnessed to verify people’s identities, among other uses. Nasdaq is now testing a system that uses blockchain to allow investors to securely vote in shareholders meetings.

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Professor K C Chan, Hong Kong’s secretary for financial services and the treasury and chairman of the Steering Group, said blockchain has “huge potential”.

Meanwhile, government-backed research into the technology would help build on the city’s existing strengths, said Larry Salibra, co-founder of the Bitcoin Association of Hong Kong.

“For Hong Kong, it makes a lot of sense because it’s really a technology - both blockchain and bitcoin -where China is playing a huge role,” Salibra said.

“We see a lot of software being developed in the West and then used in China, and so Hong Kong is a great [stepping stone].”

Salibra said the government’s openness to blockchain would allow the city to stay abreast of fast-moving technology. He praised the Hong Kong Monetary Authority for coming out early to say that bitcoin would not be regulated, saying this had helped support local bitcoin exchanges and attracted more businesses from overseas.

A number of banks around the world are now looking into blockchain by developing their own technology or partnering with start-ups in the field.

In January, Bank of America said it had filed for 15 blockchain-related patents and was planning to file another 20. Citigroup has developed its own digital currency called Citicoin.

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Blockchain and bitcoin are popular among investors with US$461 million invested in 54 companies in the field in the first nine months of 2015, according to a report by consulting firm Accenture.

Accenture predicts that distributed ledger technologies will become “a critical part of the backbone of future capital markets”. It recommends banks pay attention to the technology being developed by start-ups.

Blockchain provides both an opportunity and a risk for banks, according to Jon Allaway, senior managing director of Accenture Financial Services in Asean and executive sponsor of the FinTech Innovation Lab Asia-Pacific.

While the new technology means banks should watch out for competitors in consumer and merchant payments and lending, there are still opportunities in business-to-business payments in areas such as trade and invoicing, Allaway said.

“By nurturing fintech start-ups, such as those that are exploring possible uses for blockchain, Hong Kong positions itself as being able to lead in the future disruptive banking services that will shape finance,” Allaway said.

Central banks have also expressed interest in blockchain, with the People’s Bank of China saying it had been examining digital currencies since 2014 as the technology could reduce costs and improve transparency of transactions.

In Britain, the Bank of England has held blockchain-related competitions and sought interns with knowledge of distributed ledgers.

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Ian Wood, a partner at Simmons and Simmons who specialises in regulatory matters, called the inclusion of plans to explore blockchain in the annual government budget “intriguing”.

“The acceptance by the regulators of the use of blockchain to improve compliance efficiency and reduce the regulatory burdens for ‎financial institutions would be a great development for the Hong Kong market,” Wood said.

Australian George Harrap, co-founder of remittance start-up Bitspark, which uses bitcoin to transfer money overseas at a lower cost than traditional channels, said he opted to base his company in Hong Kong due to the clear regulatory regime mapped out in the city for bitcoin.

Harrap said the pool of people who fully understand blockchain is still limited, but that financial institutions are actively looking for interesting products and projects which use the technology.

“It’s more of a testing ground, and banks want to see how this new technology can be used as they don’t have a huge understanding of it just yet,” Harrap said.