"Crypto is a scam and a fad!" That's a typical response among the skeptics when the topic of these alternate investments comes up. And every day, the crypto world generates another headline about heists and pumps-and-dumps that make most converts wary.
According to CoinDesk, crypto scams netted a cool $2 billion via fraudulent activity, rug pulls, and hacks in 2023, further exacerbating the widespread skepticism surrounding the industry. "75% of Americans who have heard of cryptocurrencies are not confident in their safety and reliability," concluded a 2023 Pew Research survey. Decentralized credibility platform Ethos is on a mission to change that by building on the proof-of-stake concept but adapting its 'Proof of Credibility' to social interactions to address the pervasive issue of trust and accountability in the crypto space.
Having recently secured $1.75 million in pre-seed funding from a collective group of angel investors, Ethos aims to provide a solution to the reputation problem in crypto, which has been exacerbated by the pseudonymous nature of transactions and the rise of scams, to create a more trusted and transparent environment for peer-to-peer interactions.
"Fraud is everywhere in web3, and we're still in the Wild West," remarks Trevor Thompson, the company CEO. As a trader, Thompson has witnessed firsthand how corrupt people and organizations in crypto can be. "There's no accountability in the space, and those grifters continued to drain money out of the space running new scams under new guises." The very foundation that crypto was built on—pseudonymity—has recently become a thorn in its flesh, which waters down the vision the pioneers had when they established it over 30 years ago.
The Ethos team changes all that with their novel approach to crypto: credibility scores for all participants to quantify who you can trust and who can't. This mission dates back to 1993 when Timothy May and the original Cypherpunks wrote the Crypto Anarchist Manifesto. "The role of reputations—common in business and interpersonal dealings—is generally ignored in the academic crypto community, who end up tearing their hair out over extremely complicated protocols that attempt to avoid issues of reputation and economic incentives," May noted.
Thirty years later, the problem is even worse. As Ethos' CTO notes, "It's now 2024, and we're still stepping over the reputation problem." Other industries have figured out the problem and found solutions. "In modern society outside of crypto, we've progressed to a point where credibility, reputation, and networks are valuable," the team notes. "They're how you get a job, how you choose a doctor, how you get matched with an Uber driver, or how you choose to buy a product on Amazon. Some of these are objective (your 4.9-star rating on Uber), and others are subjective (how applicable is your experience for this job?)."
The Ethos solution works similarly to the proof-of-stake model many chains have adopted. In a typical transaction, validation happens through rules that peer-to-peer validators use to confirm the details. In turn, they earn rewards in the form of tokens. If the actions are against the rules, they get slashed and lose tokens. With each successive validation they perform, the validators earn more credibility and build their reputation.
"The Ethos thesis is that by adapting Proof of Stake to use people instead of validators and apply that to social interactions instead of transactions, we can create 'Proof of Credibility,' which can enable a more trusted, transparent and safe place for peer-to-peer interactions on-chain," Thompson explains. "We want to progress crypto society from the 1860s to 2020s...fortunately, we have the blueprint of how society already operates."
With the history of credibility issues in the crypto space, Ethos' solution is a contemporary adaptation of longstanding social principles. Its goal is that natural, credible humans in crypto will have a more straightforward path to separating themselves as signals from the noise by documenting who supports who in the space. Beyond that, they hope to solve the "people" problem of crypto and maybe more significant parts of the internet as the industry evolves.
