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Ren Lichtfoot

Tao is this anime's "power system". Like you posited, it's based on internal energy. It has many names in different cultures, qi, spirit, energy - etc. It's best described as the principle of ying and yang. Light and dark, strong and soft, two opposing forces that create balance. When one creates that balance, they can draw upon the essence of life aka "Tao". There are other complexities of it, but that's explored later (most likely in s2).