DEFINITION of '0x Protocol'

0x is an open protocol for decentralized digital asset exchange that runs on the Ethereum blockchain. A protocol is a set of standard rules that can be used by a system or by various transacting parties to smoothly communicate with each other. 0x protocol essentially is a standard messaging format and suite of smart contracts based on which the transacting entities can exchange digital assets or tokens.

BREAKING DOWN '0x Protocol'

To draw a parallel, think about how banks across the globe use the standard SWIFT messaging system to communicate with each other about money transfers. A standard defined set of message fields and their corresponding values are used in the SWIFT system to securely convey details like sender, recipient, amount, currency, source branch and destination branch, among others. Since each bank adapts to the standard rules of SWIFT messaging system, they are able to transact with each other directly. The situation would go awry if each bank followed its own distinct protocol, as each bank would then have to adhere to a one-on-one communication channel with every other bank. Following a standard, universally acceptable format allows for smoother operations with higher efficiency. (For more, see How the SWIFT System Works?)

0x protocol attempts to work similarly to SWIFT, but for operating decentralized exchanges for trading digital tokens and assets that run on the Ethereum blockchain. Built on the foundation of Ethereum token standards, 0x protocol acts as the key infrastructure layer for the burgeoning number of financial applications and instruments that are on-boarding the blockchain technology stack and are getting traded in digital forms. As loads of the world’s financial value is getting tokenized with every passing day, the requirement to trade such digital assets and tokens in a secure and efficient manner is growing. With its clearly defined message formats and smart contracts, 0x protocol attempts to fill up for the need.

0x protocol’s message format is a set of data fields that carries key information like the digital asset or token to be traded, the price value of transaction, the expiration time and the defined identities of the transacting parties. The smart contracts take care of the necessary business logic responsible for generating, sending, receiving and processing the data linked to the trading activity. It also allows room for the necessary upgrades, if any, in future. Provision for upgrades is necessary owing to any changes required for adhering to the modified regulations, or for any changes linked to the intrinsic working of the Ethereum blockchain network. The system also uses relayers, which act as order aggregators and are responsible for broadcasting the orders from designated market participants to the market place or exchange.

  1. Financial Information Exchange ...

    Financial Information eXchange (FIX) is an electronic communication ...
  2. Blockchain, Explained

    A simple breakdown of blockchain technology, what it is, how ...
  3. Security Token

    A security token is a portable device that authenticates a person's ...
  4. Ethereum Classic

    Ethereum Classic is a decentralized, blockchain-based distributed ...
  5. Ethereum Enterprise Alliance

    The Ethereum Enterprise Alliance brings together start-ups and ...
  6. Smart Assets (Cryptocurrency)

    Smart Assets are virtual representations of both physical and ...
Related Articles
  1. Tech

    Does Blockchain's Popularity Mean The End Of SWIFT?

    Blockchain is becoming popular with banks for cross-border transfers. Does this mean the end of SWIFT?
  2. Tech

    What is ERC-20 and What Does it Mean for Ethereum?

    Of all of the different token types available on Ethereum, ERC-20 has gained special prominence among developers.
  3. Tech

    Is 2018 the Year of the Security Token?

    With its ability to demonstrate value, security tokens could roil traditional financial markets in favor of the more hybrid blockchain models.
  4. Tech

    What Is The Enterprise Ethereum Alliance?

    The Enterprise Ethereum Alliance works to customize ethereum's blockchain technology for industry use.
  5. Tech

    More than Half of Top 100 Cryptos Have No Utility: Report

    Only 36 of the top 100 cryptocurrencies have a working product with real utility, a study claims.
  6. Tech

    What’s Causing Ethereum (ETH) to Jump 900%?

    Big banks are betting their futures on ETH's underyling technology.
  7. Tech

    Ethereum To Adopt Proof-of-Stake

    Ethereum will be moving to proof-of-stake model by end of 2017.
  8. Tech

    Understanding the Reasons Behind Ethereum's Price Rise

    The price of Ethereum has surged by 2400% year-to-date, from approximately $8 in the beginning of the year to beyond $200, pushing its market capitalization to around $18.5 billion.
  9. Tech

    Bitcoin Vs Ethereum: Driven by Different Purposes

    The popularity and rising market capitalization of Ether bring it in competition with all cryptocurrencies, especially from the trading perspective.
  10. Tech

    Could Blockchain Really Have Better Security Than Banks?

    Some experts believe adopting security measures used by banks could help to strengthen the viability of blockchain technology.
  1. Do all countries follow the same GAAP?

    Learn about GAAP and IFRS accounting standards, and understand the difficulties in having a basic set of accounting principles ... Read Answer >>
  2. What role does a correspondent bank play in an international transaction?

    Understand what a correspondent bank is and how it operates to facilitate currency exchange and financial transactions between ... Read Answer >>
  3. Who uses bills of exchange?

    Find out who uses bills of exchange, why they are important in international trade and what happens when a bill is traded ... Read Answer >>
Trading Center