Anyone who’s ever invested in cryptocurrency likely started out using Coinbase. It’s a user-friendly way to exchange your fiat money for a very select group of cryptocurrencies. It used to be only Bitcoin, Ethereum, and Litecoin that you could buy. Gradually, a few big coins were added. But in October 2018, Coinbase surprised its users by adding ZRX to its offering.
ZRX is the token of the 0x project (pronounced ‘oh-ex’). What is 0x? what does it have to do with centralized and decentralized crypto exchanges? Why does Coinbase deem it important enough to include it with the big boys? And how can it impact DGaming? Read on to find out.
Vision and Mission
0x believes that the current economic system restricts wealth to a lucky few countries, whose citizens have access to education, healthcare, and financial products that help them chase their goals. However, most people in the world aren’t born in those countries, and live in countries that have at best restricted flows of money. They have to lead lives of poverty and unfulfilled potential. It’s a geographic lottery.
0x sees a world where all forms of value are tokenized on public blockchains. Where an efficient, transparent, fair, and global financial system is free to use and runs on open-source code. Where people have more financial sovereignty, regardless of where they’re born. 0x’s mission is to create a tokenized world where all value can flow freely.
Building the foundation of a new economic model isn’t something you can do at the snap of your fingers. That’s why the 0x team upholds themselves to a high moral standard, a mentality of consistently shipping, and a focus on the long-term impact of their actions.
Lofty ambitions, but what does all this mean specifically? To fully explain, I need to talk about Mt. Gox.
The Mt. Gox Drama
The whole cryptocurrency market was really only Bitcoin for the first five years following its invention in 2008/9. It took a while for the idea to take root: Bitcoin entered the mainstream in 2013, when more people started to understand the idea and saw the potential to either overthrow the current financial system or make a quick buck.
Although Coinbase was already up and running in 2013, nearly 70% of all BTC transactions were done through Mt. Gox, a bitcoin exchange based in Japan. And right when Bitcoin’s price was skyrocketing (which meant it went over $1,000), Mt. Gox started having serious problems.
People couldn’t withdraw US dollars anymore. Later, Mt. Gox also halted all bitcoin withdrawals, citing bugs in their software. People’s money was stuck, and it was frightening. Its CEO resigned. Its website went offline. And on 28 February 2014, Mt. Gox filed for bankruptcy protection. They had lost 750,000 bitcoins, around 7% of all bitcoins and $473 million at that time.
BTC’s price plummeted, and it took Bitcoin until mid 2016 before it recovered. For a long time, people thought the project (and so also cryptocurrency in general) was dead. To this day, people are still waiting for Mt. Gox to give them back their money.
Centralized Versus Decentralized Exchanges
I tell the story because it shows the risk of putting your trust (and your money) in a centralized exchange. Whether Mt. Gox was a case of fraud or whether they were hacked is hard to say, but centralized exchanges, where all the gold lies, will attract fraudsters and hackers. These exchanges offer a single point of failure. Yet even after Mt. Gox, most major crypto exchanges are centralized: Coinbase, Poloniex, Binance, to name a few.
The Mt. Gox drama and the increased security risk of centralized exchanges are why we’ve seen a number of decentralized exchanges (DEX) pop up. In a decentralized exchange, there is no single point of failure. The users keep control of their money and rely on digital signatures to authorize trading orders.
However, a DEX has serious disadvantages too. Transactions are held to block times, which means they’re a lot slower to process than the ones on centralized exchanges. And you need to pay a fee every time you sign an order, so they’re more expensive too. DEXs are all harder to use as well, and often they’re quite illiquid. As it stands today, it’s not easy to buy or sell crypto on a DEX.
0x to the Rescue
This is where 0x comes in. 0x is an open protocol designed to enable a peer-to-peer exchange of assets on the Ethereum blockchain. 0x is a trustless exchange: each trade is an atomic swap between two parties, which means there’s no counterparty risk and no need to trust the other party either, because sending value from both sides takes place at exactly the same time. One party doesn’t have to wait for the other party to do their end of the deal. This isn’t different from what a DEX does.
But 0x fundamentally differs from a DEX in important ways: first of all, the protocol is open-source, which means it’s free to use (there is a different form of monetization which we’ll talk about later). And secondly, it provides a sharing API that allows liquidity pools to group together for a more liquid offering. Considering liquidity is one of the major problems of DEXs, this is important.
Thirdly, and most importantly, the 0x protocol allows for off-chain order broadcasting. This means that transactions on a cryptocurrency network can be processed outside of the blockchain, which means it’s much faster and can be done at lower transaction fees.
Two Ways of Using the 0x Protocol
0x can be used in two ways. First of all, if you know your counterparty, you can use the 0x protocol to securely trade your crypto assets with your counterparty, at no cost whatsoever. You can do so here. To set up your account, you will need MetaMask on Google Chrome and you’ll need to have some Ethereum in the wallet to process the initial gas fees.
There’s a minor complication. As of today, you can only trade ERC-20 tokens through the 0x protocol. ERC-20 is a token standard that pretty much all Ethereum DApps adhere to. But Ethereum itself doesn’t. So you’ll need to ‘wrap’ the Ethereum in your MetaMask wallet for it to become an ERC-20 token that you can trade with. It’s a single click to do so, and you can transfer it back to ETH 1:1, so it’s only a minor inconvenience. In the future, 0x intends to support other ERC token standards.
The second way of using the protocol, and likely the most common way people will use it, is through what’s called a ‘Relayer’. These are entities that host an off-chain order book, through which people can find, create, fill or cancel their orders. It’s how people can find counter-parties and cryptographically trade with them. Additionally, individual relayers can talk to other relayers and share their orders to increase liquidity.
What is ZRX and How is it Used?
ZRX is 0x’s cryptocurrency token. The company did an ICO on August 2017 and raised $24 million, selling one ZRX at a price of $0.05 per token. They did so without spending a dollar on marketing and without a pre-sale, which is quite remarkable.
At the time of writing, ZRX sits at $0.34, with a circulation supply of 552 million out of a total of 1 billion, and a market cap of $187 million. This ranks them #30 on CoinMarketCap.
ZRX can be used in two ways. Firstly, it’s how Relayers earn money. In exchange for hosting 0x’s off-chain order books, they can set up any fee structure they like. Anyone who trades using their order book will send them a small ZRX fee.
Secondly, ZRX can also be used to decide on the changes in the protocol. The more ZRX you own, the larger your influence over proposed changes. In 2019, 0x intends to give the community veto power over proposed changes, and in 2020 they want to introduce a liquid democracy, where the community can vote on delegates to represent them.
The Team Behind 0x
0x was co-founded in October 2016 by Will Warren (CEO) and Amir Bandeali (CTO). Since then, they’ve grown the team up to around 26 people today. There’s considerable tech expertise behind the projects, with its employees having worked at Facebook, Twitter, Yelp, Dropbox, LinkedIn, Apple, Google, and other tech giants.
0x has backing from some significant investors: Coinbase, Polychain Capital, Pantera Capital, Craft Ventures, and Scalar Capital. And they’ve also been featured on big media outlets, from Forbes to Fortune to TechCrunch.
What are the Risks?
I can really only see one risk at the moment: 0x is a protocol for the Ethereum blockchain. Hence its success relies entirely on the adoption of Ethereum as the leading blockchain platform for DApps. If everyone moves to EOS or TRON, 0x will be in trouble.
Additionally, Ethereum has a scaling problem. If there’s no widespread adoption of Loom (which can solve that scaling problem) or if Ethereum cannot implement their own scaling solutions quickly enough, the increased popularity of 0x can lead to congestion on the Ethereum network. In fact, any really successful project on the Ethereum network will lead to congestion and slow 0x down in the process.
How Can 0x Impact Gaming?
First of all, let’s establish that 0x can be useful wherever there’s some form of crypto trading. A project like Augur, the best-known prediction market blockchain project, already uses 0x so its users can quickly trade the tokens that represent outcomes of events. The 0x protocol can be used to efficiently and securely lend money in third-world countries, or to provide a liquid market for stablecoins.
For gaming, 0x allows decentralized apps (DApps) to add exchange functionality for their non-fungible tokens (NFTs). A non-fungible token is anything that’s unique (limited in supply) and has underlying value. The skin you bought for your in-game M4A1 assault rifle, for example.
Currently, trading an NFT is quite a hassle, and not so easy to integrate into a game. Additionally, each DApp on the Ethereum blockchain is likely to have its own token, which means that you need to manually buy that token on an exchange. It’s a hassle and not good for mass adoption.
0x allows DApps to integrate trading functionality into the game. The actual mechanics of the trade will happen in the background, where you don’t see it. You won’t need to go to an exchange, but you’ll be able to trade from your wallet or directly from the game. This will keep gamers immersed in the game when they want to trade.
Famous sci-fi author Arthur Clarke once wrote: any sufficiently advanced technology is indistinguishable from magic. And 0x is very much behind-the-scenes technology that intends to make the mechanisms of crypto trading disappear. It will make trading ERC-20 tokens easier and more seamless, while keeping the security of a decentralized exchange.
Their vision is noble and their mission is ambitious. The team is strong and they have excellent investor backing. They’ve consistently delivered product (the protocol was launched before their ICO) and openly communicate through the various social media channels. Considering the protocol is free, you can safely say they’re here to contribute to the blockchain industry.
Of course, they are tied to Ethereum, which is a risk. If they scale quicker than Ethereum can implement scaling solutions, they’ll suffer. And they’re losing out on the DApps built on other blockchain platforms. But as it stands, Ethereum is still the best-known and most commonly adopted blockchain platform for DApps.
If you’re a gamer and you’re playing DApps, you’re likely to never know of 0x. But whenever you trade one of your unique items with someone else through an in-game marketplace, it might well be 0x that’s doing the hard work in the background.