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0x: The Future of Ethereum-based token Trading

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Black circle man holding ethereum coin.
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0x, or “Zero-Exchange” is an Ethereum-based platform developing a new concept to manage and deal with ERC20 Tokens. 0x is looking to build a platform that enables the use of a decentralized protocol for trading Ethereum-based tokens. The protocol is intended to serve as an open standard, allowing interoperability between decentralized applications (dApps) that incorporate exchange functionality.

The 0x project is trying to introduce the next generation a new type of decentralized token exchange with the goal of making it easy to trade Ethereum-based Tokens. The 0x designation itself is used in the hexadecimal numeric constants included in Ethereum addresses. To put it in Layman’s terms 0x is an open-source protocol designed to facilitate operations with Ethereum-based tokens and assets. Aside from introducing a decentralized token exchange 0x also lets developers use the 0x protocol to build their own custom dApps offering a wide variety of user-facing applications.

The First ever Open-protocol Decentralized Token Exchange

The 0x project sees itself as an open protocol that facilitates trustless and low friction exchange of Ethereum-based assets. For end users, 0x will present itself as the infrastructure of a wide variety of user-facing applications, i.e., 0x Portal, a decentralized application that facilitates trustless trading between known counterparties. The 0x platform is also set to disrupt how Ethereum-based tokens are being traded by introducing an escape from the centralized and institutional exchanges. 0x will enable experienced traders to trade their tokens without having to recur to a third party or profit-seeking intermediaries. What the team is trying to do is to streamline the process of using different tokens in the same blockchain, meaning that developers will be able to use the 0x platform to build exchange applications on top of the 0x builder (0x.js is a Javascript library for interacting with the 0x protocol).

The 0x Protocol as a Development Platform and Decentralized Exchange Solution

The Ethereum blockchain saw numerous decentralized applications (dApps) being created using smart contracts. After a while, the lack of best practices and rapid iteration made the blockchain scattered with proprietary and application-specific implementations. Consequently, end users were exposed to numerous smart contracts of varying quality and security, with unique configuration processes and learning curves, all of which implement the same functionality. The 0x team thinks that this approach imposes unnecessary costs on the network by fragmenting end users according to the particular dApp each user happens to be using, eliminating valuable network effects around liquidity. 0x presents an elegant solution to this problem by acting as “modular, opinionated building blocks that may be assembled and reconfigured.”

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Contrary to regular user-facing exchange applications work, 0x is at its core a protocol for exchange. It uses the Ethereum blockchain to keep the platform decentralized and trustless, enabling it to work with no insecure central organization, to run away with the user’s funds or to be subjected to intense regulation.

Rather than a third party and profiting from its users, 0x will be a public infrastructure funded by a globally distributed community of stakeholders. The 0x protocol is free to use and enables for-profit user-facing exchange applications to be built on top of the protocol. The 0x token (ZRX) will be used by the platform users to pay transaction fees to the entities that host and maintain public order books. ZRX tokens are also part of the decentralized governance over 0x protocol’s update mechanisms, allowing the replacement and improvement of its underlying smart contracts over time.

The 0x token (ZRX)

The total supply of ZRX tokens is 1 billion ZRX, which is fixed and tokens can ever be mined or minted.

The most important feature for the ZRX tokens is the decentralized governance over 0x protocol’s update mechanism. It allows its underlying smart contracts to be replaced and improved over time. An update mechanism is needed because 0x is built upon Ethereum’s rapidly-evolving technology stack, decentralized governance is needed because 0x protocol’s smart contracts will have access to user funds and numerous dApps will need to plug into 0x smart contracts. Decentralized governance ensures that this update process is secure and minimizes disruption to the network.

The chart below displays the daily price action for ZRX-USD on the Poloniex exchange. With uncertainty surrounding the status of exchanges in countries such as China, tokens relating to decentralized exchanges could be a good play for 2018. For instance, the chart below shows several bullish signals for ZRX-USD.

Firstly, we see there is a triple bottom, as ZRX-USD tested an important support handle three times without managing to get break the support at $0.1752. Secondly, we see that the lagging line is moving from below, to above, the previous price action. Once confirmed, the switch of the lagging line will give a bullish signal and motivate entry into a long-term buy position. Thirdly, we look for a daily close above the base line (red), which has not occurred yet for ZRX-USD throughout its entire history. Once we get a close above the base line, this will give a strong bullish signal that momentum is turning in favor of the buyers.  

Introducing a Solution for the Future

0x is a technology that facilitates low friction peer-to-peer exchange of ERC20 tokens on the Ethereum blockchain. Nowadays, we can already find several ERC20 tokens, which according to experts represent a market value of more than $2 billion and every day dozens of new tokens are flooding the market. The 0x platform is designed to support all Ethereum-based assets using the ERC20 token standard. The development team believes that soon all assets including scarce digital goods such as video game items, bonds and derivatives, fiat currencies and traditional securities such as equities, will be tokenized and envisions that by 2020, thousands of assets will have been moved onto the Ethereum blockchain.

The 0x team is certain that cryptocurrencies such as Bitcoin or Litecoin will end up as tokens on the Ethereum blockchain while cross-blockchain solutions are going to allow digital currencies to be transacted between several blockchains. This means that there is an increasing need to streamline and simplify the process of using tokens and 0x has already come up with an innovative solution to cope with the fast moving Token environment of the future. In a more abstract context, 0x represents the beginning of the end for centralized exchanges and the first recognized Ethereum ‘killer app.’