0x is a protocol that aims to create a bridge between decentralized applications and decentralized exchanges.
Centralization has been a major problem in various industries and sectors until blockchain stepped in with its default decentralized architecture. The advent of blockchain paved the way for innovative technologies like decentralized applications (dapps) to be created on the Ethereum network in the form of the so-called decentralized finance (DeFi).
Decentralized exchanges (DEXs) have also been generated in order to give provide users with a platform with seamless and secure interoperability when trading or investing in cryptocurrencies.
Back in 2016, Will Warren and Amir Bandeali created a revolutionary protocol to facilitate the development of Ethereum-based decentralized exchanges. The project got funding from Blockchain Capital, Pantera, Fintech Blockchain Group, Jen Advisors, and Polychain Capital.
What Is 0x?
One problem that has plagued the Ethereum network for a while now is the lag in verifying transactions. Considering that there are a lot of decentralized applications on the Ethereum blockchain, users are saddled with the troubles of waiting for confirmation time. 0x was created with the perfect solution to facilitate faster transactions without verifying on the Ethereum network. It is interesting to see how the crypto world has evolved since the creation of the Ethereum.
0x uses a verification method that functions with side-chains, and thus, more transactions can be performed in less time. Furthermore, the 0x protocol intends to make it easy for different types of tokens to get exchanged, and create more liquidity.
The 0x protocol comes with some unique features, and they include:
There is no central authority to oversee transactions or operations within the network. This eliminates intrusion from third parties that may want to perform fraudulent or malicious activities with people’s tokens.
The protocol is open-source and accessible to anyone looking to check the code for any changes. This allows third-party auditors or virtually any developer to assess the viability of source code and potentially spot vulnerabilities.
By default, any data that gets recorded on the Ethereum decentralized ledger cannot be altered or manipulated. This makes it secure and nearly impossible to hack and defraud users via the protocol alone.
- Smart contracts
Different transactional and operational functions can be performed efficiently and effectively without the need of brokers or lawyers. The smart contract automates these functions and ensures that there are no defaults from the involved parties.
- ERC-20 tokens
A lot of the tokens within the crypto community are ERC-20 tokens, and 0x is compatible with most of the tokens.
The 0x protocol makes it possible for different ERC-20 tokens to get exchanged with each other.
0x performs verification of transactions with side-chains, and thus, saves the Ethereum from getting clogged up. This paves the way for more transactions to happen without dragging the speed of the network.
The ability for DApp users to swap their tokens with ease, and without third-party interference makes 0x a revolutionary protocol.
In order for the open-source protocol to function, the ZRX token will be used to facilitate P2P exchanges. Furthermore, it will also provide liquidity to the market, as well as an infrastructure for the implementation of smart contracts. With ZRX tokens, users will be able to cast votes on what is referred to as “Improvement Proposals”.
The ZRX token can be used to facilitate the delegation of ZRX to staking pools where rewards can be earned. The protocol token will be used to protect protocols from future changes within the decentralized network. Another use of the native token is to facilitate incentives and deal with costs generated with the implementation of technical standards.
How 0x Works
One unique feature of the 0x protocol is its ability to perform on-chain settlements and off-chain order relays. This is why users can perform quick transactions without the hassles of waiting for verification on the Ethereum network. The 0x protocol’s flexibility makes it easy to integrate into existing decentralized systems to provide efficiency.
The diagram on the left illustrates the on-chain settlement and off-chain order relay processes. The gray circles and rectangles are indicative of Ethererum accounts and smart contracts, respectively. The directional indicator towards the smart contracts shows the command or calls between the two parties involved in a transaction. Smart contracts are designed to also command actions as functions of other smart contracts.
Information flow is represented by the directional indicators that are outside the Ethereum blockchain. The numbers in the diagram are explained through the following:
- The initiator (Maker) grants approval to the smart contract of the decentralized exchange to view token A in ‘maker account’.
- An order is created by Maker to facilitate the exchange of Token B for Token A, indicating contract requirements.
- The order is broadcasted through the network’s transport layer (communication framework)
- The order is accepted by the taker and filled appropriately.
- The taker grants approval to the smart contract of the decentralized exchange to view token B in ‘taker account’.
- The taker sends the filled and private key signed makers’ order for verification and authentication by the DEX smart contract.
- The makers’ signature gets authenticated by the DEX smart contract, and also carries out a verification process. It verifies the expiration and filling of the order before transferring tokens between both parties, based on the agreed exchange rate.
Other 0x Functions
While the 0x protocol facilitates a decentralized exchange, there are other use cases of the network:
- Decentralized Loans
The creation of liquidity markets will encourage the buying and selling of loans in a decentralized environment.
- Crypto Fund Management
The implementation of smart contracts creates a trustless system where crypto funds exchange can take place with risks mitigated.
- Forecast Markets
For the creation of tokens that can be staked for events that occur in the real world.
- Decentralized Governance
For the creation of ownership tokens that can grant organizations autonomous and seamless operations.
The world of dapps and DeFi need an interoperable platform where diverse ERC-20 tokens can be exchanged. In line with that, 0x has the framework and mechanism in place to facilitate the provision of increased liquidity. As the crypto community is pushing for mass adoption of crypto and blockchain, and 0x is aligning with the movement through its revolutionary protocol.