Mentioned this in other 'PvP/PvE' threads:
Rare want's players to be the pirate they want to be, and the only way to do that and represent it in game, is with reputation.
The more PvP you initiate (kill players and sink ships), the farther your rep moves to being 'bad'. Alternatively, the more NPC quest you complete, the farther you move towards being 'good'.
Your rep would be 'worn' as the color of your name and ships flag.
Blue - Good
Light Blue
White - Neutral
Orange
Red - Bad
The Dev's would need to determine how many kills it takes to climb to 'Red' (ie. 1000 ships sunk /player kills?) and how many NPC quests it would take to climb to 'Blue' (ie. 1000 quest?). It should represent a significant investment in time and effort at either end.
Many players can and will find a way to balance both and float around neutral, if that's the pirate they want to be.
As a consequence to being 'red', there should only be a couple Outposts you can trade with. As all the other 'red' pirates will be forced to go there, they'd be the rougher Outposts...... perfect for any murderous pirate.
What this does is add player customization outside cosmetics, which many players are looking for. It also adds a limited form of consequence to 'aggressive' PvPers.
The biggest advantage I see to a system like this in game is the community building. The difference between seeing a red or blue flag on the horizon would be significant.
Any pirate who sails the seas should have a pretty good idea of who's good and bad, and since we all join random servers each game, there's really only one why to represent that, and it's a rep system.