/etc/passwd is one of the essential files for a smoothly-running *n?x system. It is generally readable by anyone, so that library routines can look up usernames to get UIDs and PIDs, or convert these IDs back into names.
It got its name from the fact that it used to contain an encrypted form of the user's password. That was only moderately secure and only for a while. Nowadays the password is elsewhere as well as more cryptographically "hard", because (among other things) machines are much faster and the bad guys have better tools for password cracking.