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Not everything is about crypto here. sMerits/Merits are plain conventional updates made to table variables within the Bitcointalk database, with a spice of transparency that allows anyone to browse through each one’s profile and view who sent how many sMerits to whom, and for what post over the last 120 days. Additionally, the forum provided the transaction files for those that wish to track or further exploit the information through external cumulative databases.
Nothing fancy in the implementation side (no coin/token, wallets, miners, proof of whatever algorithms, etc.), "just" a plain process running in the background updating the Merit Source allowance (values on database tables) according to the implemented algorithm.
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Edit: The thread you reference does not really talk about how smerits are generated to provide the Merit Sources, which is what the OP is asking for, but rather their relation to ranking requirements (outdate for Jr. Members, since they require 1 merit now, not 0), some early stats on averages earned per rank (after only one month of having the system running), and some ranking-up projections.