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What is 0x (ZRX): Understanding the 0x Protocol

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What is 0x (ZRX): Understanding the 0x Protocol

Discover what is 0x (ZRX), including its role in decentralized trading, the ZRX token’s governance features, and how to buy and sell ZRX in the crypto market.

Crypto trading often faces the challenge of centralization, where exchanges pool digital assets from numerous users into a single centralized pool, acting as intermediaries for transactions. This approach goes against the decentralized principles that inspire many crypto enthusiasts.

To address this issue, Will Warren and Amir Bandeali conceived the 0x Protocol in 2017. It is an open-source, peer-to-peer (P2P) system that empowers developers to construct decentralized exchanges (DEXs) on the Ethereum (ETH) blockchain. 

Warren and Bandeali intended the protocol to foster secure, cost-efficient trading without centralized intermediaries, better aligning with the decentralized aspirations of many in the crypto community.

In this guide, we’ll examine the 0x project’s inner workings, explore its edge over regular exchanges, and see how its capabilities can be used to create new applications.

What is 0x (ZRX)?

As mentioned, 0x is an open protocol developed by 0x Labs to facilitate peer-to-peer transactions of Ethereum-based assets. 

It not only serves as an open standard but also facilitates the building of diverse crypto platforms. These platforms include decentralized exchanges tailored for a specific asset on a particular market, an eBay-like marketplace for digital goods, or even sophisticated market-making or arbitrage trading bots. 

Not only that, 0x has also democratized the creation of DEXs through its launch kit, allowing anyone to develop their own decentralized exchange and charge fees for services rendered.

At its heart is a standardized messaging format and the 0x application programming interface (API), that streamlines communication and the consolidation of liquidity across networks. These features are meant to help users exchange crypto assets at the most favorable rates. 

Their impact has been evident, with 0x stating that it has processed over 52 million transactions, totaling $125 billion in volume, and serving more than 6 million users. 

Additionally, 0x provides a solid foundation for defi protocols requiring liquidity and exchange functionalities, such as derivatives, lending, options protocols, and over-the-counter (OTC) trading desks.

Beyond these, 0x can integrate into existing decentralized applications (dapps) whose main focus is not the exchange of crypto assets. Such applications include diverse sectors like web3 gaming, where in-game currencies or items can be exchanged, digital wallets or portfolio management platforms seeking to enhance their offerings by enabling users to trade their crypto assets within the dapp.

What is ZRX crypto?

ZRX is the native token of the 0x network. Its value stems from its role in driving operations on the 0x protocol. For instance, ZRX token holders have the power to vote on 0x Improvement Proposals (ZEIPs), which are public proposals aimed at changing the parameters of the 0x smart contracts. 

Each token equals one vote, so your voting power depends on how much ZRX crypto you have. People with more ZRX have more influence in the voting process.

Additionally, users have the option to delegate their tokens to other validators, enabling them to vote on behalf of the token holders while still earning rewards from the block generation process. Validators are participants within a blockchain network whose job is to confirm transactions on the blockchain and ensure its accuracy and security. In proof-of-stake (PoS) systems such as the one used in the 0x project, participants have to stake a certain amount of the blockchain’s native token to become validators.

Furthermore, ZRX is used to create liquidity through a shared pool accessible to various decentralized applications on 0x. Developers can use this liquidity to build DEXs and other financial tools to enable previously unattainable markets and to drive innovation in the crypto economy.

The token operates within a capped supply framework, specifically tailored to support 0x markets. There will only ever be 1 billion ZRX tokens in existence, giving them a sense of scarcity and potentially contributing to their long-term value appreciation.

How does 0x work?

Anyone with knowledge of the traditional banking system may have heard about the SWIFT network, a global messaging system that facilitates the quick, accurate, and secure transmission of information between banks. 

That is 0x (ZRX) explained. The protocol serves a similar purpose in crypto. It essentially acts as a standardized messaging format that ensures smooth communication between networks to enhance interoperability and efficiency.

You can leverage the protocol for both tokenizing assets and engaging in buying and selling activities on the Ethereum blockchain. To operate any 0x market, there are two user roles: makers and takers. 

Makers, also known as suppliers, create 0x orders and inject liquidity into the system for takers, who are on the demand side, to use. This liquidity aggregation process includes on-chain sources like DEXs and automated market makers (AMMs) such as Uniswap, Curve, and Bancor.

On the demand side, takers are those looking to acquire assets from makers, and they consume the liquidity provided by 0x. Notable examples of takers include projects like MetaMask, Coinbase, and dydx.

The protocol uses a series of smart contracts deployed on Ethereum to act as intermediaries between makers and takers during token exchanges. Smart contracts are automated transactions that execute based on predefined conditions, allowing participants to trade directly without relying on a central authority.

Furthermore, 0x uses parties called relayers to host its order books off-chain. You can manage these order books using an API, a graphical interface (GUI), or both. 

Relayers help traders find others to trade with and move signed orders between them securely. When two parties agree on an order, it gets settled directly on the Ethereum blockchain using smart contracts from the 0x protocol.

Here’s a breakdown of how trading on 0x happens:

  • Makers create orders stating what they want to trade.
  • These orders are shared with potential buyers (takers).
  • 0x gathers all available orders to find the best price for buyers.
  • Takers confirm how much they want to buy and send this to the blockchain.
  • The blockchain checks if everything matches the trade conditions.
  • If all is well, the trade happens; if not, it’s canceled.

Unlike traditional exchanges, 0x does not store orders directly on the blockchain; instead, it stores them off-chain and only executes trade settlements on-chain. This design makes the protocol flexible and gas-efficient.

Benefits of using 0x

0x presents numerous advantages over traditional exchanges, including enhanced security, lower transaction costs, and modular development tools. It enables the creation of decentralized exchanges, reducing reliance on intermediaries and fostering direct peer-to-peer transactions.

Moreover, its customizable nature empowers developers to tailor applications for diverse trading experiences.

How to buy 0x

Investing in ZRX involves navigating crypto exchanges, verifying identities, making deposits, and executing trades. Below are the steps you’ll generally need to follow:

  • Start by choosing a reputable crypto exchange that supports 0x, such as Kraken, Binance, or Coinbase, and set up an account with them.
  • Complete the necessary verification requirements to ensure your account is secure and complies with the law.
  • Connect a funding method to your account and deposit money into it. This could be a bank transfer, a credit card, or other cryptocurrencies.
  • Once you have funded your account, search for a ZRX trading pair on the exchange. The token could be paired with the U.S. dollar (USD), euro (EUR), or other cryptocurrencies like Bitcoin (BTC) and Ethereum.
  • Decide whether you want to buy 0x with crypto or fiat currency, enter the amount of 0x you want to buy, and place your order.
  • Confirm the details of your order and execute the trade. If successful, the ZRX will be credited to your exchange wallet.
  • You may then choose to move the tokens to a more secure personal wallet.  

How to sell 0x

If you want to sell 0x, the first two steps of the process are the same as what you would do for buying. You’d need to select a crypto exchange of your choice and then register and verify an account with them. After that, you may do things a little differently.

  • Deposit 0x tokens to your exchange wallet by generating a deposit address on the exchange and transferring coins from your personal wallet.
  • Find a ZRX trading pair on the exchange and decide whether you want to sell your coins for fiat currency or another cryptocurrency.
  • Enter the amount of ZRX you wish to sell, set the desired price, and then place a sell order on the exchange.
  • Once a buyer matches your order, the trade will execute, and your ZRX will be sold.
  • After the trade is complete, you can withdraw your funds and transfer them to your desired account.

How many ZRX coins are there?

As of this writing, there are 847,496,055 ZRX coins in circulation, according to data from crypto price aggregator CoinGecko. However, ZRX has a maximum supply capped at 1 billion tokens. Currently, it is priced at about $0.6465, which is an 85.