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On the Wave of China’s Blockchain Hype: the Story of Zhigui
COVID-19 and China
Zhigui’s team. Image credit: Zhigui.com

► Four-year-old Zhigui is a key player in the domain of enterprise blockchain.
► It has recalibrated its capabilities from copyright protection and traceability to data governance and supply chain finance.

China, indisputably, is among the world’s blockchain innovation hubs. We, once again, proved this statement in the latest ‘Blockchain, China’s Story’ report. Slightly different from the popularity of cryptocurrency-related business in the western world, the climate here has been shifting towards the so-called coinless blockchain, which focuses more on driving the real economy as pushed by the policymakers and tech giants.

EqualOcean has had two conversations with representatives of Zhigui (纸贵科技, also known as Zhigui.com and Ziggurat), a major player in China’s blockchain space. We first talked to Mark Xuan, the company’s co-founder, during a webinar held on April 26. Then we had an in-depth discussion with Chen Chang, the Executive President of the company.

This article is a result of the two dialogues. Here, we go through the history of Zhigui and its current business scope, explaining how China’s blockchain-friendly state accelerated the development of the nascent technology and helped a bunch of startups to find their niche.

The history

Founded in 2016, Zhigui is a blockchain solution company that serves the real economy.

However, different from many of its peers, who initiated their businesses with blockchain, the starting point of Zhigui comes from the pain points in real-world scenarios. It then employs blockchain as a solution.

The two co-founders of the company, Mark Xuan and Tang Ling, identified a persistent issue in traditional copyright protection whereby various infringement activities continue to increase, while the costs for authors to protect their rights are high. Next, after they completed their studies at Xi’an Transportation University, they initiated the business to protect intellectual rights by technical means.

With four years of development, Zhigui has been gradually expanding its business scope and transforming towards a blockchain solution provider that covers multiple business scenarios.

The scope

Its current product mix consists of three layers: the infrastructure layer that is comprised of Z-Ledger – a permission blockchain platform developed upon Hyperledger Fabric – and Zeus, which is a cross-chain network. Then there is the cloud service layer where Zhigui has its Z-BaaS that is able to support multiple mainstream protocols. Above this is the solution layer. Until now, the company has mainly targeted four categories, namely finance, data governance, copyright and traceability.

For any company that deals with emerging technologies, commercialization is always a central problem apart from the technical material itself – especially for startups that lack the business potential energy brought by the synergies within big corporations. On the one hand, founding teams with tech backgrounds often lack sensitivity around market needs, and on the other hand, they tend to short in networks with business partners.

For permission blockchain players, this issue can be broken down by asking what application scenarios truly need blockchain and if there are associated profit models that can go through.

During the interview, we discussed the issue with Chen Chang – who joined the company in 2017 with several members from his former R&D team at IBM – to see the logic for Zhigui in choosing applications fields to provide blockchain solutions.

►Copyright protection and goods traceability: signatures to gain awareness and attract clients

“Although Zhigui initiated its business to help the creators protect their IP, copyright is no longer the field that the firm needs to pay primary attention to for now, and also, in the foreseeable future,” said Chen Chang.

Blockchain, with its features of decentralization and immutability, has the potential to assist in solving the ongoing pain points of the traditional copyright protection approach; for example, it can help creators to lower the registration fee and shorten the duration for the entire process, and make the copyright information transparent and easy to inquire about.

However, blockchain – as a technique – cannot resolve all the underlying issues in the scenario. For example, it is not capable of detecting the authenticity and ownership of the information itself before it is uploaded on the blockchain; also, whilst blockchain platforms can provide creators with relevant evidence in a timely matter, it cannot help creators to defend their copyrights in a direct way.

For fields with sound standards and systems, this will definitely not be a problem. But for intellectual rights protection in China, the inadequacy of the field itself means any company that targets the relevant scenarios inside eventually needs to cover the entire process, from confirming to defending, in order to run through the business model and generate steady revenue from it.

For tech startups like Zhigui, it is apparently not wise to keep focusing on application fields where the entire system itself is highly unsound, although the company is currently the leader in the segment – with more than 750,000 pieces of works registered on its platform, it is also cooperating with about 50 content platforms, including Ximalaya and Tianya Club.

“We realized that if we continue to set copyright protection as the central application scenario of our blockchain solution product, we will finally become a law firm,” Chen Chang noted. “While copyright protection will remain as part of our business, it will act more as a signature for us to gain awareness and for the general public to get to know blockchain, but will not be the major direction of Zhigui in the future.”

The situation is similar, to some extent, when talking about the application of blockchain in goods traceability. Meanwhile, it is worth mentioning that, even though a blockchain solution cannot fully solve all the issues throughout the entire process of goods traceability – especially for precisely mapping the off-chain real-world data to the on-chain ones – it can at least make sure which node holds accountability, and thus increase the costs and risks in violating the rules. Also, with the development of other emerging technologies, especially IoT and AI, the solution for goods traceability will become more complete.

►Data governance and supply chain finance: most feasible areas with promising potential

In 2018, Zhigui expanded its scope to cover new domains, where the markets are larger and it is easier for a blockchain solution provider to fit in, and to get clients as well as make profits.

“Supply chain finance and data governance are the most feasible application fields,” said Chen Chang. “The latter is something of a stable income for us while the former has great potential to grow exponentially.”

Supply chain finance is undoubtedly the largest application scenario for blockchain solutions in China. EqualOcean has found that about 50% of all the current use projects in the country lie in this category.

Although there are doubts about the motivation for big corporations seeking to participate in the blockchain system by sharing data regarding their upstream suppliers and downstream dealers, Chen Chang does not consider it a big problem. In doing so, these key players can benefit from the quicker and easier process for participants in their entire supply chain system in reaching out to finance, both direct (from loan interest, either cooperating with banks or managing by themselves) and indirect (from higher operating efficiencies in the entire system).

In January 2020, Zhigui started cooperating with ICBC and will provide technical support for its enterprise-level blockchain technology platform (namely ‘工银玺链’ in Chinese).

Talking about the competitive landscape in the field, the Executive President remarked that the company did not see much pressure from the fintech arms of big players who also provide blockchain solutions in supply chain finance.

“The incumbent banks are more or less showing caution on these big players; especially for state-owned ones, they will not allow challengers to their business to build technical infrastructure and customize solutions for them,” according to Chen Chang. “Meanwhile, we as companies that specifically target blockchain-related solutions, tend to have advanced technical capabilities and experience in this area, as compared to the blockchain segments of juggernauts.”

As for data governance, the capabilities of blockchain regarding secured storage and trusted sharing means the technique has the potential to solve the problem of data islands in the field of big data. According to Chen Chang, Zhigui is among the top tier of blockchain solution providers in this area.

As for now, Zhigui has about 110 employees, 70% of which are focused on R&D. It is a Hyperledger certified service provider (HCSP) and also the vice-chairman unit of the Trusted Blockchain Promotion Program of The China Academy of Information and Communications Technology (CAICT). The company has offices in Beijing, Xi’an, Wuhan, Suzhou, Shanghai and Singapore. It aims at further expansion in the East China region.

Considering future strategies, Chen Chang noted that Zhigui will be a fintech and regulation technology (Regtech) company, rather than simply a software firm. This implies that it will be looking into potential leads in hardware integration and into stepping into the domains of other emerging technologies instead of focusing on blockchain alone.

*Contributor: Ivan Platonov | Editor: Luke Sheehan
ANALYST
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