The Pioneers of Programmable Money, Introducing 0x
By: Febin John James
Tags: Token, Cryptocurrency, Blockchain, Innovation, Technology

If you give someone $50 and instruct them to only use it to buy healthy food. They can choose to ignore the instruction and lie to you. You won’t even know about it.

In our day to day transactions, we expect people to satisfy our instructions. When they break those instructions, you are likely to face a loss.

What if we can strictly enforce instructions in our transactions?

Ethereum is a cryptocurrency that provides you with a system to facilitate transactions only when a given set of instructions are satisfied. The system is transparent because it keeps a log of the decision making process.

If you are funding a non-profit, you can provide an instruction to release funds only if the organization reach the target of sheltering a thousand people.

The beauty is you can have more instructions, you can also instruct to release half the funds if 500 people are sheltered.

Hence, we have the ability to program money that can move at the speed of computers. Currently, money moves according to the speed of people involved.

Let’s take startup fundraising as an example. After you convince an angel investor or a venture capitalist, it would take three to four months for the process to complete and then money is transferred.

On Ethereum you can raise investments in few hours.

You can instruct the Ethereum computer through a smart contract to issue the investor a token when he transfers money. The investor will be able to redeem the token for a product or service your company provides in the future.

Presently there are more than 18,000 tokens on the Ethereum platform which are worth several billion dollars.

People will buy your tokens for two reasons.

They want to redeem your service on a future date.

They believe in your idea and expect its price to increase in the future and they can exchange it for profit.

Your customers are likely to hold tokens of other companies. If they are frequent traders they are likely to keep them in exchanges.

Keeping tokens in centeralised exchanges is a bad idea. The following is a list of attacks on centeralised exchanges. If your tokens are stolen, your company can be at risk.

If you have instructed your Ethereum contract to follow instructions of your majority stakeholders, hackers will dictate your company’s terms.

Centeralised exchanges are closed systems. An open system like Ethereum is easily extendable since anyone is allowed to interface with it to build applications.

In a closed exchange, the company can choose to extend only certain functionalities to a certain set of people. Hence, it’s hard to build autonomous applications on closed systems. Now, how do we solve the problem of security and closed system?

Decentralised Exchanges

In a decentralized exchange, trading happens directly between people’s wallets. The decenteralised exchange doesn’t hold their user’s assets.

Traders create an order at the price in which they want to buy or sell and pre-authorises a transaction. The order is broadcasted through out the network, traders who are willing to counter the order fills it.

If Sara wants to exchange BAT for ETH, she specifies the price at which wants to sell it and create an order in a decentralized exchange. The decentralised exchange pings her wallet to take her approval in order to pre-authorise the transaction.

After her approval, the order is visible to other traders who can choose to fill the trade. Mark chooses to fill the trade, he authorizes the transaction through his wallet.

The trade happens, Sara’s BAT token get transferred to Mark’s wallet and his ETH is sent to her wallet. The trade didn’t require a middleman to hold tokens.

Key Features of Decentralised Exchanges

The security risk is minimised because no assets are held.

Trading happens faster because the time taken to transfer assets to exchanges is eliminated.

Governments cannot regulate or ban it since the Ethereum system approves only decisions given by the majority stakeholders.

The cost involved in maintaining a decentralized exchange is drastically less when compared to managing centralized ones.

The trading fee is comparatively less because the infrastructure costs are optimised and the withdrawal fee is eliminated.

Decentralised exchanges are also extendible since it supports application integration.

It is an open platform and anyone can build relayers/services on top of it.

Introducing 0x

Open frameworks played an important role on the internet we see today. If you want to build a web app from scratch you have to do a lot of things yourself (listening to requests from port 80, writing a wrapper to interact with your database, etc).

But, people hardly code from scratch. Instead, they use MVP frameworks like Laravel, CodeIgniter, Django, Flask, etc. You can reuse their code which was refined over time by the community. This process can save you time and help you take your ideas to market faster.

Now back to programmable money!

Building autonomous systems that can facilitate transactions on Ethereum from scratch is hard and time-consuming. Your code needs to be optimised because you have to pay for the computational power utilised.

0x is a protocol that takes care of the core architecture. Hence you can focus on the core business logic and worry less about the architecture. 0x smart contracts are rent free and open source. It is backed by a strong community who continuously refine and optimise its code.

You can use their APIs to easily program money or even build a decentralised exchange/relayer. We already have a lot of projects built on top of 0x. Radar Relay, ERC Dex, DDEX, Paradex (Acquired by Coinbase) are the popular relayers built on 0x.

They are called relayers because they use 0x’s infrastructure to enable trading. These relayers can charge its users a fee for its services. This is a win-win situation for both 0x and relayers because they will individually market and compete to build quality services on top of 0x.

When relayers attract more users, 0x will start growing as an open platform. This would also enhance 0x architecture since its open source and contributed by the community. Relayers thus don’t have to worry about maintenance and system upgrades, they can focus on the core business model.