How to build an on-chain reputation system using NFTs, social tokens, and scores?

Author: Shenchao TechFlow

Original Title: 《NFTs, Social Tokens, and Scores: How Should On-Chain Reputation Systems Be Built?》

The Future of Reputation Scores is Closely Related to the Community

In the real world, we can use a driver's license to prove our identity, but it does not display enough personal information or reputation. To understand a person or their past experiences in the real world, one might need to ask mutual acquaintances or chat with them about their interests. However, the process of getting to know someone deeply can be time-consuming and inefficient.

In contrast, getting to know someone online and understanding their social reputation seems much easier. With just a few minutes spent on Facebook and Google searches, you can view a person's photos, thoughts, articles they share, and more, gaining insight into their reputation. However, there are two issues with current online methods: first, everyone is striving to maintain their online reputation, and second, it is difficult to discern the truth.

It is in this context that decentralized networks (also known as Web3) have emerged. Now, most of our data is stored on-chain, and this data is open, easily accessible, and interoperable, allowing it to be used across many different types of decentralized applications. Historically, there has never been such an easy way to understand a person or view their social reputation.

In fact, our online identities and social reputations are not just important core data (such as name, serial number, rank), but they are also constantly evolving. Depending on different contexts (such as at work, on Twitter, or with friends), we can leverage multiple aspects of personal identity. The more information we store on-chain, the closer our quantification of personal value aligns with an individual's true worth. Utilizing Web3 technology to properly assess social reputation will allow people to view each other's profiles (such as abilities, values, status) from a verified perspective rather than a trust-based one, leading to a new level of interaction.

However, even as we gradually store more and more data on-chain, there is still a lack of an evaluation system to effectively quantify our social reputation. Various existing solutions have their trade-offs, but none can be considered perfect.

Solution 1: Quantifying Reputation through Social Tokens

Social tokens are virtual currencies that exist on the blockchain. They can be earned by completing specific tasks and can be exchanged for other cryptocurrencies or special community benefits related to tokens (such as access to token-gated content or voting rights on future strategic decisions).

These virtual currencies are crucial for the efficient operation of decentralized autonomous organizations (DAOs), as they can serve as salaries, create stronger trust, adjust incentive mechanisms, and retain contributors.

In the workplace, social tokens can act as virtual currencies within a DAO (which we can liken to a Web3 startup). They can effectively measure participation in games and community involvement, and they provide a wealth of micro-practical experiences in quantifying and measuring experience, reputation, and online achievements.

The more tokens a person holds, the greater their contribution to participating in and helping the DAO grow. Some platforms, like Coinvise, have already implemented this functionality, aiming to better reflect work quality and community impact through social tokens.

Social tokens can serve as verifiable credentials when applying to a DAO. In exchange, decentralized communities will be able to pre-assess the value of candidates and accordingly arrange their work within projects.

Social tokens provide a great system that can discover, analyze, and utilize data created by users across different applications, platforms, networks, and DAOs.

However, social tokens still have several issues that need to be addressed:

• Anyone can purchase tokens—nowadays, people can increase their reputation and voting power by buying tokens, which is unfair to those who earn tokens through hard work. We will need a system to distinguish between "purchased tokens" and "earned tokens."
• Web3 wallets are not optimized for social tokens—current wallets do not support users in conveniently showcasing their tokens to others. Web3 wallets should optimize for social tokens, creating a dedicated space for them and allowing users to easily manage social tokens (including features like hiding and displaying).
• Social tokens are still in a developmental experimental phase—up to now, they have not formed a true network effect. We need more DAOs to adopt this quantification of social reputation; only then can we see the prosperity of social tokens.
• On-chain costs are higher—since network members must pay GAS fees to send social tokens, currently obtaining social reputation solely through social tokens is quite expensive (notably, Layer 2 blockchains are on the way, which can address this issue).

Solution 2: Quantifying Reputation through NFTs

"Non-fungible tokens" (NFTs) are generally a means of access to a community. They possess status, scarcity, and a sense of belonging to specific community members. Collections of NFTs represent membership in different communities and provide special benefits for those communities.

They are a good way to quantify reputation, and after the hype surrounding NFTs in 2020, they have developed strong network effects. They are one of the most widely adopted technologies in today's Web3 landscape, with people creating their online identities around their NFTs (e.g., @punk6529 or @BAYC2745) to promote the ease of adoption, use, and integration of NFTs. Additionally, dozens of projects have established Web3 social/identity tools for NFTs. This technological network effect is the strongest factor supporting the use of NFTs as a basis for identity.

NFTs are also a great way to showcase one's belonging to a specific community, and the interface of Web3 wallets is optimized for displaying community membership. Purchasing a rare NFT can instantly enhance social reputation; it's that simple.

Finally, because the existence and value of NFTs do not rely on liquidity, there are no costs associated with maintaining liquidity, making NFTs a great way to quantify social reputation, with promising prospects and cost-effectiveness.

However, to make NFTs an effective means of quantifying reputation, several issues still need to be resolved:

• They are issued only once at a specific point in time. Rather than providing real-time observations of someone's reputation, they are more like a "badge."
• They are transferable, representing more wealth and status rather than reputation (e.g., Crypto Punks, BAYC).
• They benefit the community but do not truly focus on individuals (e.g., FWB, WHALE).
• They exist on public blockchains, so they are inherently public. However, they exist on specific chains and lack cross-chain support for NFTs, making their reputation isolated.

Solution 3: Quantifying Reputation through Scores

As a saying goes, "It takes years to build a reputation, but only a day to destroy it." The nature of reputation means it is a "spectrum" comprehensive evaluation rather than a simple "yes or no" answer. It is not only a comprehensive assessment but also varies depending on the evaluator's perspective. For example, your performance in front of friends may differ from that in front of family or colleagues.

Scores provide a new perspective for quantifying on-chain reputation. They can be seen as digital representations in specific contexts, continuously updating and evaluating an address's reputation based on their on-chain and off-chain behavior (if both are linked to the same address). This simulates how reputation operates in the real world, allowing for a broader expression of how someone earns "trust" and the sources of that trust. Depending on the score creator's choice, scores derived from viewing on-chain data, snapshot voting data, and DAO contribution metrics can be narrow or broad. Examples of scores can include:

• Tokens: Specific HODL scores that measure how long you have held tokens.
• Airdrop: Specific Airdrop scores that measure how many airdrop tokens you retained compared to other participants.
• Protocol: Specific Credit scores that measure your creditworthiness under dynamic load conditions.

Compared to other types of reputation, scores represent a new type that has much yet to be explored. One major concern about scores is that they may inherently become binary, similar to China's credit system. The key distinction here is that it only judges behavior at the wallet level; if a user does not want their past behavior to follow them for life, they can completely start over (by changing wallets).

Scores also have another major aspect—since they require processing and traversing large datasets, they are purely computed off-chain and uploaded on-chain. This means that once scores are stored on a certain chain, they can be used on other chains as well. The downside is that users develop potential trust in off-chain computing engines and need to ensure that scores are fully published on-chain. Platforms like ARCx are working to create scoring functionalities to power Web3 applications that support reputation.

Conclusion

On-chain reputation and on-chain identity are the next major areas in cryptocurrency, enabling a whole new category of applications. At this stage, everyone is trying to understand how various architectural approaches can achieve the ultimate goal of "creating real end-user value." In our current situation, there are several prominent questions worth considering:

1. Should reputation elements be dynamic or static?
2. Should everything be stored on-chain, or can some elements be stored off-chain?
3. Should non-transferability be a hard requirement or an option?
4. Should they be linked to real-world identities (social tokens), or should they support pseudonymous identities?
5. How should reputation elements be stored on-chain? Should they be an NFT, an Oracle, or an ever-updating Merkle root upload?

These are fundamental questions about how to quantify reputation, but as more products emerge in the market, we will gradually find answers to all these questions.