The passwd file gets it's name from the historical password file when there were in fact encrypted passwords in the file. Back then CPUs were generally less than 100Mhz so brute force password cracking was at best a very leisurely hobby. After it became more of a thing people got the idea that maybe it made sense to put it in a seperate file without public read access. Still, you CAN put encrypted passwords in the password file if you really want to, else the :x: just says go look in the shadow file.

@CameronDev No, but there was a time that was the norm. There also was a time that triple-DES was the encryption standard. But again those times a 100Mhz single core CPU was a high end CPU.