The XRPL lets anyone create new assets on the XRP Ledger easily. These are called issued currencies and they can act as representations of assets on other blockchains (like GateHub Fifth BTC and GateHub Fifth ETH), representations of assets from legacy systems (like GateHub EUR and GateHub USD), commodities (like BPG XAU), tokens (like Casinocoin CSC) and various others.
The role of XRP
XRP is the native asset and can be freely transacted over the network without limitations. It is used to pay for transaction costs (each transaction costs a small amount of XRP which is burnt and not paid to anyone) and for reserves.
How are new assets created
In order to create a new asset, trust lines are required so that the so-called issuer can “mint” the new asset. There are certain advantages and drawbacks to this simplicity.
A clear advantage is that in order to launch a new asset, no coding knowledge is required as opposed to creating tokens on the Ethereum network via smart contracts. The process is cheap, quick and simple.
An obvious drawback is that this simplicity will inevitably attract scammers that will try to part you and your valuable assets in exchange for these worthless assets under some pretext.
Trust lines, therefore act to enable and regulate the use of issued assets. The creation of an asset is not possible if no trust line exists. When an asset already exists its circulation is limited by how many wallets have trusts enabled for this asset. Its circulation can be stopped if the issuing address freezes the asset.
There is a common misconception that XRP can be frozen on the XRPL. This is not true. XRP is the backbone of the XRPL and cannot be frozen. All secondary assets however can be frozen if the issuer decides to do so.
What are trust lines, actually
A trust line specifies who you are trusting for which asset. When creating a trust line on GateHub, you (your wallet) are saying that you trust GateHub to hold the specified asset while you use its representation on the XRP Ledger.
In terms of the XRP Ledger, a trust line is an object owned by a wallet that specifies what address is trusted for which asset code. A single address can issue more than one asset but this is not always the best idea.
Creating a trust line does not expose your wallet to any attack. It just lets your wallet receive the asset in question. It can however result in tax obligations in certain jurisdictions if you receive an airdrop. Caution is advised.
Strengths and limitations of trust lines
Trust lines are powerful in the sense that they enable and regulate the circulation of an asset. When used properly by the issuer and users they enable one of the most powerful features of the XRPL, the decentralized exchange.
Any asset on the XRPL can be traded to any other asset including XRP. Trust lines also allow you to specify how many of the tokens you are willing to hold in your wallet and once that limit is hit, you can’t receive any more.
warning_amberWe strongly suggest that you only create trust lines for assets backed by known and trustworthy entities. Trading unverified assets can result in significant losses.
A significant advantage of trading on the XRPL is that XRP can be used as an intermediary currency to trade any two other assets. Some assets have low direct liquidity but their indirect liquidity via XRP might be a lot higher. All GateHub markets use Auto-bridging to make your trades faster and more reliable.
Trust lines and their balances must be managed properly in order to reach their full potential. For example, some assets on the XRPL were once backed by known businesses (see Defunct gateways). These businesses have since closed and their issued assets have become worthless even though they might have represented actual assets at some point. For this reason it is advisable to check on your wallet and trust lines regularly to avoid being left with worthless assets on your XRPL wallet.
Trust lines and their connection to actual assets
When it comes to issued assets on the XRPL, the XRP Ledger is not aware of any facts regarding the underlying assets. For example, you can create a trust line for GateHub Fifth BTC with a limit higher than 21 Million BTC that will ever exist. The XRP Ledger does not have the knowledge of Bitcoin specifics.
In GateHub’s case, a trust line is the promise that GateHub will deliver the actual asset to an address you specify when you decide to make a withdrawal. While the asset is “tokenized” on the XRPL it can be sent to other users and traded in a fast and cheap way over the XRPL. All GateHub’s assets are backed on their respective networks by GateHub.
In the case of Casinocoin CSC, the asset CSC is an actual token on the XRPL. The Casinocoin team decided to migrate to the XRPL due to the low costs and high transaction speed of the network. The CSC token lives on the XRPL. It needs to be noted here that even though CSC lives natively on the XRPL, it is not the native asset of the XRPL like XRP. You still need to create a trust line to hold CSC, while you don’t need to do so for XRP.
A core strength of the XRPL is its ability to tokenize any kind of asset. You could, for example, tokenize any fungible asset like cryptocurrency and fiat currency (common), commodities (uncommon), stocks (regulatory limitations), utility tokens (like CSC), etc. Some upcoming amendments to the XRPL will also allow users to issue NFTs on the XRPL which seems to be the next leap in crypto. The future of the XRPL is bright!