With the surge in cryptocurrency and their enthusiasts, you can witness new entities being listed in different exchanges. Not just that, new entries are being developed on a totally different technology that has changed the way the Blockchain used to be. Amid all the noise of being centralized and decentralized exchanges, there are new things to transmogrify the game of Blockchain. Presently, one of the most talked about technology is 0x Protocol that claims to be the best of both worlds as it is an off-chin platform.
What is 0x Protocol?
0x was co-founded in October 2016 by Will Warren and Amir Bandeali with a vision of a world where every asset can become a token on the Ethereum blockchain that also include stocks, gold, games and fiat currencies. Now that every entity can be a token, it would require a medium of trustless exchange, which, in some ways, is already being taken care of by decentralized exchanges. However, these exchanges have their own flaws in operability among each other.
This is when 0x helps by setting a standard set of rules called protocol, on Ethereum blockchain allowing every Ethereum token to be traded freely and letting everyone to operate a decentralized exchange. Now that 0x is just a protocol, a consumer interactive product called OTC is designed that uses 0x Protocol. It allows peer to peer exchange of all the Ethereum tokens without the need of relayers (parties developing on top of 0x).
Also Read: Top 5 Trends of Blockchain Technology 2018
How does 0x work?
The major concept 0x follows is to emphasize on off-chain ordering relay that cuts the processing fee (called gas price in Ethereum) and diminishes the network bloat. As you know that decentralized exchanges work using smart contracts that makes the trades taking place within these smart contracts and eliminating the middleman fees with customers having hold on their own funds. This way, investors don’t need to trust on any third party like they do in a centralized exchange.
Although decentralized exchanges perform greatly when it comes to security but you can’t overlook the decentralized counterparts in user’s transaction costs and accessibility. This is when 0x Protocol comes to your rescue with a strategy to uplift the decentralized exchanges by using the off-chain ordering relays in conjunction with on-chain settlements. This way, it lets you broadcast an order off chain that can be filled by another user. Here, all trading instructions are executed off chain and only the value transfers get executed on-chain. This way transaction can only proceed within the network when there is a task/trade is being processed. This lets users have reduced processing fee (gas fee) with their transactions.
Message format for broadcast orders sourced from 0x whitepapers.
|version||address||Address of the Exchange smart contract.|
|maker||address||Address originating the order.|
|tokenA||address||Address of an ERC20 Token contract.|
|tokenB||address||Address of an ERC20 Token contract.|
|valueA||uint256||Total units of tokenA offered by maker.|
|valueB||uint256||Total units of tokenB requested by maker.|
|expiration||uint256||Time at which the order expires (seconds since unix epoch).|
|feeRecipient||address||Address of a Relayer. Receives transaction fees.|
|feeA||uint256||Total units of protocol token Maker pays to feeRecipient.|
|feeB||uint256||Total units of protocol token Taker pays to feeRecipient.|
|v||uint8||ECDSA signature of the above arguments.|
|r||bytes32||ECDSA signature of the above arguments.|
|s||bytes32||ECDSA signature of the above arguments.|
Overall, 0x Protocol is a combined set of rules made up of strength retrieved from centralized and decentralized exchanges without their flaws. In most of the decentralized exchanges every order passes through the blockchain, which makes it liquified, sluggish and costly and inoperable. Also, these exchanges entirely rely on block times and incurred network processing fee for every transaction made. Wherein 0x sets a protocol that puts these orders off the blockchain and brings them back only when the order needs to be settled. You must also know that 0x possesses its own Ethereum token called ZRX, which is used to pay the transaction fees to relayers.