Researchers Find Issues With 0x, An Ethereum-Based Project Aiming To Raise Millions In An ICO

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0x (pronounced “zero-x”), an Ethereum-based project looking to raise $24 million in an initial coin offering (ICO) today, has some missing elements, according to a group of computer scientists who recently examined the project under a microscope. 

The 0x ICO comes in the midst of a string of ICOs that have raised a total of $1.3 billion in funds this year for fledgling projects built on blockchain platforms such as Ethereum, according to the digital currency website CoinDesk.

After reviewing the project’s publicly available Github code and white paper, researchers at Cornell Tech’s Initiative for Cryptocurrencies and Contracts (IC3), summarized their findings in a blog post on the Hacking Distributed website Sunday. According to their report, the 0x code is incomplete.

Additionally, they say the project does not fully specify how it plans to use its ZRX digital token in a proposed governance scheme to upgrade the protocol, a missing link that brings into question potential security risks. (I’ve reached out to 0x for comment and will update this post when I hear back.) 

But before delving deeper, it is helpful to understand what the 0x project aims to do.

What Is 0x?

Put simply, 0x is a decentralized exchange that allows users to trade different types of Ethereum-based tokens directly. Decentralized exchanges are getting a lot of attention these days, mainly because they avoid a single point of failure.

In contrast, because centralized exchanges, like Coinbase, Kraken, and ShapeShift, require users to hand their money over to a third party, they carry the risk of theft. Two of the most notable virtually currency heists occurred at Mt Gox in 2014 and Bitfinex in 2016, resulting in losses of $460M and $72M, respectively. ShapeShift was also the victim of a string of thefts in 2016, resulting in $230,000 in losses. 

So the whole idea behind decentralized exchanges is to keep user funds within the security of the blockchain. To explain further, 0x works something like this: A “maker” broadcasts their order.  A “relayer” then posts that order in an off-chain order book, and a counterparty (called a “taker”) accepts the order by pushing the transaction into the project’s DEX smart contract. It is also possible for users to trade point-to-point, cutting the relayer out of the picture.