Difficulty is adjusted as it is always is for PoW.
How do you deal with user A with a very slow device sending a transaction vs user B with a mining farm sending a transaction? I.e why can't B push the difficulty up so high as to make sending a transaction impossible for A?
The profitability is orthogonal to your point, which is you mean how to get Bitcoin's security if the percentage of your market cap paid to mining debasement and the market cap are not the same level as for Bitcoin.
Yes and no. Bitcoin's security is not orthogonal to the block reward - it is tied directly to it. If you assume hashing power is proportional to reward, interpolating the hashing power at 25 BTC per block down to the average amount of transaction fees per block, the security of the chain diminishes accordingly.
The only need for the PoW in my design is to prevent a Sybil attack on the distributed confirmation resources. A 51% attack that orphans a legitimate chain of these statements about resources, can't undo the reality of the inertia that has been established on that orphaned chain. It can supplement the resources, but attempting to take away resources that already intertwined in the inertia will be ignored by all those nodes which are bound to lose income from unwinding that inertia.
I look forward to reading more details about your definition of inertia as it pertains to consensus design with great enthusiasm
