What Is 0x? Definition and How It Works in Crypto Trading

What Is 0x?

0x is a decentralized exchange for trading ERC 20 tokens. (See also: What Is ERC 20 And What Does It Mean For Ethereum?). It is among the most high-profile examples of decentralized cryptocurrency exchanges. 

Buyers and sellers are connected directly in this form of trading.

Understanding 0x

0x is a peer-to-peer exchange of Ethereum-based tokens. It is often referred to as a decentralized exchange.

0x uses common smart contracts over a shared infrastructure. Its technology combines two strategies—state channels and automated market markers (AMMs)—that have already been suggested to overcome these problems.

State channels take transactions offline, thereby reducing costs that are incurred if the transactions take place on Ethereum’s network. AMMs introduce a third party to facilitate trades if the price of a crypto asset reaches a certain threshold. Thus, AMM conducts trades between the two parties (instead of the parties conducted it between themselves) and also acts as a counterparty.

0x founders describe their system as an “off-chain order relay with on-chain settlement."

0x often refers to its solution as the “Craigslist for cryptocurrencies,” in that any developer can build their own cryptocurrency exchange and post it online. 

0x's own Ethereum token (ZRX) is used to pay trading fees to relayers, which are used to connect makers with takers.

History of 0x

Will Warren and Amir Bandeali co-founded 0x in October 2016. Their initial intention was to provide a standard method of trading any Ethereum token on the blockchain.

Their vision was a world where each asset, from fiat currencies and stocks to gold and digital gaming items, could be represented as a token on the Ethereum blockchain.

The two quickly recognized the large usability gap and instead turned the project into a decentralized exchange. 0x raised $24 million in an initial coin offering (ICO) for its ZRX token.

With this new protocol, decentralized exchanges improved dramatically in terms of usability. That's because 0x allowed Ethereum tokens to be exchanged over any decentralized exchange using the protocol.

Since its inception, several decentralized exchanges have built on top of 0x including Nuo, Zerion, DeFi Saver, and Radar Relay.

Concerns About 0x

The biggest concern about 0x's long-term sustainability is that it faces intense competition from other functional decentralized exchanges. Additionally, 0x doesn't interact with fiat currency, meaning users need to own Ethereum in order to use the exchange.

Moreover, 0x faces many of the same criticisms common to decentralized exchanges including inconsistent liquidity and slow transaction times relative to a centralized exchange.

Future of 0x

The 0x protocol is one of the most widely-used decentralized protocols in the industry.

While questions still remain about its sustainability, chances are that users will only place more and more emphasis on decentralization and security going forward. Because of that, 0x provides significant long-term potential.

How Is 0x Different From a Regular Trading Model?

Most cryptocurrency exchanges follow the established centralized trading model.

In this paradigm, they are gatekeepers providing the infrastructure and acting as connecting agents to clear and facilitate trade between parties. North America’s largest cryptocurrency exchange, Coinbase, is the best example of this approach.

This model requires customers to trust their funds with exchanges. While the model has worked for equity markets, an increasing number of hacks at exchanges has put its future in cryptocurrency markets under a cloud. Decentralized trading seeks to address that. 

Goals of 0x

0x's goals include "building infrastructure, making assets more accessible, more liquid, and empowering enterprising teams around the world to build a new financial system."

0x wants to build the most efficient, transparent, and equitable financial system in history.

Its mission statement is to "create a tokenized world where all value can flow freely."

0x Cryptocurrency FAQs

How Do I Mine 0x Cryptocurrency?

0x (ZRX) is not a mineable coin. The platform is based on a proof-of-work mechanism, making it unmineable in the traditional sense.

Is 0x the Same As ZRX Cryptocurrency?

0x is an open protocol built for the decentralized exchange of tokens on the Ethereum blockchain. ZRX, meanwhile, is the protocol's token that drives governance and functions within 0x.

Which Exchanges Sell 0x Crypto?

ZRX is available on several leading cryptocurrency exchanges including Coinbase, Gemini, and Binance.

What Does ZRX Coin Do?

ZRX coin does two main things within the 0x protocol. First, it's used for paying trading fees to Relayers for their book-making services. Second, ZRX coin is used for governance, allowing owners to have influence over the protocol in proportion to their holdings.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author does not own cryptocurrency.