PART 1 - Advanced features of the XRPL - Trust lines, native vs. non-native assets, KYC and more

We saw many questions about the specifics of the XRPL in our messages and on social media so we decided to clear up some of the most common questions. The following are deep dives into some complex topics like trust lines and issuance of assets on the XRPL, bridging between networks and advanced features of the XRP Ledger.

What do trust lines mean on the XRPL?

The XRPL utilizes a concept called trust line so wallet owners can specify which assets they are willing to hold. In brief, a line of trust is extended to the issuer to hold their issued asset. On the Ethereum network this concept does not exist which means that an address can receive unsolicited tokens from any party. The XRPL solves this problem with trust lines which are explicit statements that an address is willing to receive a certain token by a certain issuer.

A trust line must be set for EACH token and issuer. For example setting a trust line for GateHub BTC, makes a wallet able to receive ONLY GateHub BTC. Trusting a specific issuer address for a specific token does not mean you will be able to receive any other tokens issued by the same address. Please also note that asset codes are case sensitive on the XRPL, therefore BTC, btc and Btc are all different assets.

Another available setting of the XRPL trust lines is the limit which specifies how much of a certain asset you are willing to hold. For example, you can set the limit for your GateHub BTC trust line to 1 and nobody will be able to send you an amount that will change your balance to more than 1. This can be circumvented if you create a trade order which will increase your balance to more than 1 because the XRPL considers an open order as implicit consent that you are willing to hold more of an asset than your trust line limit. If you don’t have a trust line for a certain asset yet, you can simply make a trade into that asset and your open order will be converted into a trust line with a limit of 0. This too is considered an implicit consent to hold the asset.

Why do you need a trust line to be able to receive and hold certain assets?

Without a trust line, your wallet is considered as not willing to hold any other asset than XRP. XRP can be sent over freely around the XRPL without trust line limitations. Other assets however require explicit consent from the wallet’s owner via a trust line. This is to prevent spamming accounts with unsolicited balances and to empower users to deal with assets other than XRP under their own terms.

What are native and non-native assets?

XRP is the original native asset that can be transferred between any wallet. All other assets require trust lines to function. We could also say that XRP is the primary asset of the XRPL, while all others are secondary assets. A similar situation exists on the Ethereum blockchain where ETH is the primary asset and all other (ERC-20) tokens are secondary assets.

There are heaps of new projects popping up on the XRPL. Most of them are creating their tokens or assets directly on the XRPL which makes them native assets to the XRPL. Some native assets on the XRPL are CSC by Casinocoin, ELS by Aesthetes and SOLO by Sologenic.

At GateHub you can deposit and withdraw assets like BTC, USD and ETH. These assets are represented on the XRPL as tokens or IOUs. These can be redeemed for their actual counterparts when withdrawing. These assets are what we call non-native because they are merely representations of assets that exist outside of the XRPL. 1 GateHub BTC is a representation of 1 BTC on the Bitcoin blockchain that is held in custody with GateHub. When you decide to withdraw, your GateHub BTC will be returned to GateHub and burned* and GateHub will send an actual BTC to your specified Bitcoin wallet.

*When an IOU is sent back to the issuer address, the issuer’s obligation decreases for that amount. The IOU is taken out of circulation and can be considered burned.

Why do I need XRPL wallet to trade on XRPL?

In order to interact with the XRPL, an XRPL wallet is required. No action on the network can be done without a funded XRPL address. Trading on the XRPL likewise requires at least a funded address that can create an offer on the XRPL DEX. The other requirement for trading is at least one asset other than XRP. As we know now, trust lines are required to support assets other than XRP and are vital to trading as well.

The XRPL ecosystem has grown considerably in the past few years. A number of new assets were created on the Ledger recently. This means that the XRPL DEX is a more lively place than it was. We need to stress here that not all projects are trustworthy and we advise caution when dealing with any other asset on the XRPL.

Can you trade on XRPL without KYC? How?

Yes. Trading on the XRPL is completely decentralized. The XRP Ledger features a native exchange function, which means that any participant on the network can utilize all the functionality without limits, as a decentralized network should allow.

The exchange functionality matches open orders between themselves and also lets orders utilize liquidity from other markets, most prominently XRP markets. This is called auto-bridging and comes into play when a low liquidity market utilizes the liquidity of relevant XRP markets to execute a more favourable exchange.

Does the XRPL have any offline functionality?

Yes. You can sign transactions offline, but the only way to transmit a transaction to the ledger involves some kind of connectivity. There are tools out there that will let you create a transaction “blob” offline and this can be submitted to the ledger safely at a later time. The blob does not expose any of your sensitive information.

You should find a way to check if the transaction was successful to avoid any complications. This can be checked on an XRPL explorer like GateHub’s XRPL explorer or numerous others like Bithomp or XRPScan.

You have come to the end of the first part of the FAQ on  XRPL. Stay tuned for part 2, where we will give answers to even more specific questions.