This is a two part requirement:
dress modestly and
have no tattoos. Each part has its own explanation. But they share a common principle which is that you should conform to the evil styles of modern culture. Anyone who dresses immodestly or has tattoos is proclaiming their allegiance to modern cultural values. Biblic Judaism is meant as an alternative to modern cultural values, so we do not permit these things.
Of the three requirements, this is the one that can easily be judged on sight. You can look at most of the population and recognize that they are not one of us just by seeing their immodest dress or their tattoos. So this is another reason why this is a requirement of Biblic Judaism, to help other people recognize that you are not evil.
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