A decentralized reputation system using the Ethereum blockchain

Egoistic Altruism

I recently watched a video on egoistic altruism created by the “Kurzgesagt — In a Nutshell” folks — one of my favorite YouTube channels. The video’s premise is that by helping those less fortunate than us, we actually enable our own success.

Think of it like a positive-sum game instead of a zero-sum game…the pie of wealth gets bigger. Let me explain. As education and financial access increase across the globe, the demand for ideas increases. People get wealthier. This wealth drives demand for products and services, fostering innovation. Society continues getting better because we keep finding better solutions to existing problems and solutions to problems we didn’t even know we had.

Wow. If this argument holds true, we can do global social good while simultaneously pursuing our own selfish desires to make an impact, find meaning, and attain financial wealth.


If this seems a bit too grandiose for you, you may want to stop reading right here. The rest of the article explains the hackathon project that my team and I worked on this past weekend. We developed a platform and an application based on a whole new paradigm, and it’s best to keep an open mind. In the words of Mark Twain:

“Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.”

The Problem

Two billion (yes, that is a “b”) people in the world are unbanked — yes, this is a real word to describe those without a bank account. These individuals are excluded from the world’s financial systems. They cannot open credit cards, they cannot make online purchases, they cannot borrow money, and ultimately they are unable to achieve upward economic mobility. For a farmer in Kenya, a bad drought could do more than just wipe out crops. It could lead to complete financial wipe out as the farmer is unable to attain a loan and start rebuilding.

The problem is one of trust. Because the farmer has never participated in the traditional financial ecosystem, she/he may as well not exist….to the bank. The farmer does not have a financial track record — no credit score.

The Solution

Credit scores are the way we — in the United States — prove our financial track record. Other countries have their own systems and developing countries oftentimes have no system at all. It is these developing countries that we decided to target when creating SOURCE, a blockchain powered reputation scoring platform.

In our new model, reputation is the proxy for credit worthiness.

In the case of a farmer in Kenya, her/his community — family, friends, local merchants — can all help decide if she/he is good for the money. Eventually, as the person’s reputation grows, banks can jump in to vouch as well.

It’s possible to build a prediction model of credit worthiness based on psychometric tests (think employment test), that are probably pretty darn accurate.

I say “probably” because I haven’t done extensive research, however I did read the results of a pilot study in Peru done by the World Bank on the effectiveness of a psychometric screening tool with respect to credit worthiness — the results showed positive prediction results. Also, in today’s age of big data and machine learning, I bet we can get really get good at designing effective psychometric tests.

The Token

Some of you may have heard of ERC20 tokens. This is the standard protocol for the majority of tokens out there, you know the zillion of companies that have had an ICO. ERC20 tokens however only work for fungible assets — assets that can be interchanged with one another. Like bitcoin for example, or the US dollar (I can exchange any one of the dollar bills in my pocket for any other dollar bill). Reputation endorsements however are unique, non-fungible assets, therefore the ERC20 token standard would not work. Instead, we utilized the ERC721 token standard protocol for non-fungible assets. For those of you familiar with Cryptokitties, each kitty represents a unique non-fungible ERC721 token.

Incentive Mechanisms

You’ve probably already thought of half a dozen ways that someone can cheat. You’re right, but only if network participants are not properly incentivized. More on this in a later post, but what I’m trying to say is that the Ethereum token (ERC721 in our case) can be designed in a such a way as to financially incentivize collaboration rather than collusion. Potentially, we could even use a token curated registry that would enable a system of self-regulation wherein participants are incentivized to not only not cheat but also to exclude the cheaters. Again, more on these technicals in a later post.


Conclusion

We can extrapolate this use case beyond credit scores. What if you received an endorsement every time you reviewed a restaurant on Yelp, weren’t a drunken mess in an Uber, or didn’t catfish your Tinder date? And all of this took place in an interoperable, decentralized ecosystem where participants are financially incentivized to be trustworthy. I’m just scratching the surface here. The opportunities are endless to flip traditional business models on their heads, so let’s work together to build out the decentralized world.

Big shout-out to my teammates Zhenting Zhou and Philip Glazman, two rock-star coders and thinkers.