What is 0x?
As its website conveys, “0x is an open, permissionless protocol allowing for ERC20 tokens to be traded on the Ethereum blockchain” and will be used for “powering decentralized exchange.”
When they founded 0x in October of 2016, Amir Bandeali and Will Warren were betting on the disruptive trajectory of blockchain technology. They believe in a future where assets of all flavors, from stocks to currencies to precious metals, are traded publicly as tokens on the blockchain. Given the versatility of Ethereum’s platform and the scope of its decentralized applications, they think Ethereum’s blockchain is the ideal medium to accommodate this revolution in asset exchange.
There’s the TLDR version of 0x. It’s a protocol that wants to streamline token trading with off-chain orders via Ethereum powered smart contracts.
How it Works
The crux of 0x’s decentralized trading focuses on an off-chain ordering relay that cuts back on gas prices and reduces network bloat. For those of you who have any experience with a decentralized exchange like Ether Delta, you may already see the benefit of off-chain orders.
If you don’t, here’s a quick explanation. Most decentralized exchanges function using smart contracts powered by the Ethereum blockchain. This means that all order functions and trades take place within these smart contracts, and users are always in control of their funds, rather than trusting them to a third party like they would with a centralized exchange (e.g., Binance and Bittrex).
It also means that traders must execute transactions on the blockchain every time they want to manage their funds, whether that be for depositing funds into an exchange’s smart contract or placing, canceling, or filling an order. This costs gas, a fee paid in Ethereum to ensure that these transactions are processed on the blockchain by its miners.
If you were using Ether Delta, for instance, you’d pay a gas fee every time you wanted to deposit funds into the exchange’s smart contract to make an order, and you’d pay another gas fee to execute that trade once your order is filled.
As you can see, between depositing, placing an order, executing a trade, and withdrawing, gas fees can add up quickly. Decentralized exchanges are great for their security benefits, but they lag behind their decentralized counterparts in both user operation costs and accessibility for this very reason.
This is where 0x comes in. The 0x protocol wants to improve decentralized exchanges by utilizing off-chain ordering relays in conjunction with on-chain settlements. Essentially, this allows users to broadcast an order off-chain to be filled by another user. Only value transfers are executed on-chain, leaving all other trading commands to off-chain procedures Thus, transactions are only run through the network when a trade is executed, allowing users to reduce the gas fees associated with trading operations.
To accomplish this, 0x uses what it calls “relayers”. Relayers are responsible for broadcasting orders through public or private order books. They bring liquidity to the network by hosting its order books, acting effectively as an exchange. Unlike an exchange, however, a relayer cannot execute a trade. It can only facilitate trading by presenting maker orders broadcasted to the network. For a trade to be fully executed, a taker must fulfill the order by submitting the maker’s signature along with its own to the decentralize exchange’s smart contract. In compensation for facilitating this exchange, a relayer is paid a fee in 0x’s native currency, ZRX, for each transaction.
When trades are processed through a relayer, they are known as Broadcast Orders. Broadcast orders allow for anyone to submit an order to the network, and in turn, they also allow for anyone to intercept these orders and fill them.
0x also accommodates Point-to-Point Orders, which are orders transmitted by makers with a specific taker in mind. These orders allow two users to directly transfer funds through a variety of messaging mediums, including email, Facebook messenger, and more. When a maker address sends an order relay this way, only the specified taker address can fulfill it, protecting funds from being hijacked by malicious third parties.
Along with compensating relayers for broadcasting order books, the ZRX token is used to facilitate decentralized governance on 0x’s platform. Stakeholders will use the currency to vote on decisions that affect the blockchain, including protocol integrations and upgrades, without disrupting the entire network.
In addition, the 0x protocol is application agnostic, and its smart contracts are open sourced and publically accessible. This allows any development team to build on 0x if they need an exchange function for their token or platform, so the protocol serves as a plug-in for other Ethereum-powered dApps. Its application agnosticism and shared protocol layer also allow for dApp interoperability, creating a “shared infrastructure for a variety of [applications].”
Lastly, 0x sports a “Token Registry contract [that] will be used to store a list of ERC20 tokens with associated metadata for each token: name, symbol, contract address, and the number of decimal places needed to represent a token’s smallest unit (needed to determine exchange rates). The registry will serve as an official on-chain reference that may be used by market participants to independently verify token addresses and exchange rates before executing a trade.” 0x stakeholders will be responsible for governing this information by adding, modify, and removing data when needed.
0x Trading History
Following a high of $0.50 coming out of its ICO, 0x slowly receded to a support of ~$0.20 throughout September. It remained at this level during the month of October and had a relatively quiet November in a time when most altcoins were gaining.
Starting in December, 0x made a run for the heavens, peaking at a new all-time high of $1.30 on January 5th. It quickly corrected from this top, and at the time of writing, it sits at roughly $1.10.
Where to Buy, Where to Store
Most of 0x’s trading volume comes from Binance or Poloniex in the form of Bitcoin and Ethereum trading pairs, but it’s listed on a number of popular exchanges, including Huobi, OKEx, HitBTC, and Liqui among others.
0x is an ERC20 token, so the Meta Mask browser extension, Ledger Nano S, and My Ether Wallet will support 0x along with any other ERC20 compatible wallet. If you’re looking for a software wallet, check out Exodus.
Roadmap and What’s to Come
Back in September of 2017, the 0x team posted an updated roadmap on their blog. In late November, they posted a development update that addresses some of the roadmap’s Q4 goals for 2017. These include:
- Progress on 0x v.2 and requested feedback/contributions from the community.
By Q2 of 2018, the team hopes to have reusable layer UI components and 0x v.2 live on the mainnet. They also plan to publish a whitepaper fleshing out the details of 0x’s governance system.
With its protocol, 0x takes the strengths of both centralized and decentralized exchanges while leaving their weaknesses behind. Off-chain order relays allow for the same low-cost operations that centralized exchanges offer without sacrificing personal asset management and fund security. The on-chain transaction settlements, in addition, give users all the benefits of decentralized trading, making it so that transactions are only cleared once both makers and takers hold up their end of the bargain. And both processes are managed via smart contracts for enhanced security.
Given the maelstrom of hacks that have swept funds from centralized exchanges over 2017, the cryptocurrency community needs decentralized exchanges. As crypto gains prominence and more money enters the market, so too will opportunities increase for malicious actors to profit from vulnerable investors. Decentralized exchanges offer a panacea to such a community ailment, and perhaps 0x’s novel design will do its part to usher in a new era of secure, decentralized trading.
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