Social Credit System for Crypto? These Founders Say It’s the Only Way to Go

This anecdote from Trevor Thompson, CEO of cryptocurrency “credit score” brand Ethos and web2 veteran, highlights one of the predominant issues facing the crypto space today: fraud.

As Trevor and Ethos CTO/fellow web2 veteran Ben Walther point out, over $9 billion was stolen worldwide through crypto fraud schemes in 2022 alone. As such, many investors have lost faith in crypto’s potential largely because the platform’s emphasis on decentralization and anonymity has become a double-edged sword of accountability.

Addressing the complications of anonymity is no simple task, given that web3 is built upon a foundation of anonymity, so approaching the issue has proven particularly tricky. Trevor and Ben noticed this widening gap in crypto credibility and decided to develop Ethos in response.

Working Toward an “Onchain Reputation”

As Trevor and Ben have shown, the current crypto environment lacks any real infrastructure to accommodate for positive and negative onchain behaviors; if a bad actor wants to scam someone out of their tokens, they can do so without much threat of punishment since nobody knows who anybody else is, making it difficult to identify said bad actors.

Ethos’s solution to this problem is to put in place what Trevor and Ben call an onchain “credibility score,” wherein users can identify other users and determine whether they’re safe to interact with based on their score.

At first glance, this approach may sound against the web3 ethos of anonymity, but Ethos ensures that users can build up their reputations while still remaining fully anonymous—only identified by their wallet address or Twitter handle. “We also think that the idea of having a ‘credibility score’ is potentially controversial,” Trevor admits. “Most people can recall the Black Mirror episode where everyone has a social rating score. Most people are aware of foreign nation’s attempts to do this.” He continues, however, by explaining the necessity of the measure, as “the space is so bad that it’s required.”

Developing Onchain Credibility

The structure for an onchain credibility score is partially based on FICO business models for fiat currencies since web3’s finance market is immature and, according to Trevor and Ben, requires some degree of structure and management.

For some networks, Proof of Stake is the process used to vet chains and make sure the network maintains consensus via validation. While this form of validation works for operating a smart contract blockchain, Ethos would modify stake validation to instead focus more on people, having them act as social validators. In doing this, people can be part of the process of determining who can be trusted, who needs to be reprimanded for stepping out of line, and who should be rewarded for maintaining social consensus.

These concepts essentially boil down to what Trevor and Ben term Reviews, Vouches, and Slashes. Users review other users for free or can put money on the line and vouch for others to show the rest of the network that user can really be trusted. Particularly untrustworthy participants could be slashed and have a financial downside if successful. All of these mechanics affect credibility scores, operating as a proxy for trustworthiness.

Ultimately, Ethos is there to better onboard and retain crypto participants, to the point where people stop questioning why someone might quit their job to go “work in a scam industry.” If crypto is to regain any semblance of respectability and reputation, then it needs to have a socially determined set of rules in place to do so.