What is 0x (ZRX)? A Protocol for Building Decentralized Exchanges

0x is a protocol designed for the decentralized exchange of tokens on the blockchain, providing the necessary infrastructure for companies to create decentralized exchanges (DEXs).

Founded in October 2016 by Amir Bandeali and Will Warren, 0x released its white paper in February 2017 and launched its initial coin offering (ICO) in August of the same year. The founders were motivated by the vision that anything with assigned value in the world will eventually become tokenized and integrated into an open financial network, particularly through the Ethereum blockchain, which is expected to host thousands of different tokens.

The overarching vision for 0x is the tokenization of various assets such as traditional currencies, stocks, bonds, loyalty points, in-game items, airline miles, and more. As these assets migrate to the Ethereum blockchain, a demand for seamless token transfers is anticipated, and 0x aims to provide the tools to facilitate this process effectively.

The 0x team is a close-knit group of approximately 20 individuals located across the globe, including the US, Poland, Switzerland, and Australia. They convene every few months to align on progress and future plans.

### Decentralized vs. Centralized Exchanges

To grasp the problem that 0x addresses, it’s essential to understand the key differences between centralized and decentralized exchanges. The primary motivation for users to opt for a DEX over a centralized exchange is enhanced security.

When users deposit cryptocurrencies into centralized exchanges, such as Coinbase or Binance, they essentially relinquish full control over their funds. Users must trust these exchanges to secure their assets, which poses significant risks if the exchange is hacked or faces financial failure.

In contrast, decentralized exchanges operate on a peer-to-peer model, where all trading activities occur via smart contracts directly on the blockchain. This system eliminates intermediaries, allowing users to maintain control of their funds throughout the trading process.

However, increased security typically comes with disadvantages. Currently, decentralized exchanges tend to be slower and have lower liquidity compared to their centralized counterparts. Thus, 0x aims to provide the underlying technology that enables the creation of decentralized exchanges with performance metrics closer to those of centralized exchanges.

### Existing Approaches to Decentralized Exchanges

Presently, several decentralized exchanges and decentralized applications (DApps) exist that require exchange functionalities. A common issue among these platforms is their reliance on proprietary smart contracts, which hampers interoperability and results in low liquidity and high latency across the ecosystem.

The early decentralized exchanges built on the Ethereum blockchain attempted to replicate the functionalities of centralized exchanges by transferring them into smart contracts. However, this approach has inherent limitations that 0x seeks to overcome.

In summary, 0x aspires to redefine the landscape of decentralized exchanges by addressing the existing challenges and enabling a smoother, more efficient trading experience for all users.