people would choose individual websites (likely their friends) to host ads of, although list making would be problematic
ideally would just serve images or gifs with as simple an API as possible
similar idea to point 1 but abuse of such a system would be an issue (eg. a website is hacked and changed to inappropriate ads). one of the concept’s main implications
similar idea to point 2: videos could also be problematic though
potentially some form of client-side (website) caching? this whole thing is just an idea, so I really don’t know how it work
no revenue - and therefore breaches of privacy and tracking would be unlikely - as the servers would be individually hosted, and therefore decentralised. however, this approach would make it significantly easier for malicious parties to pay users for ads.
as to whether or not that happens would be the user’s decision, although (at least right now) such advertising sounds more costly and hard to enforce.
you’re right that ad-blockers could (although probably not at first) be used to block ads, as the ads would be for other personal websites (no real ad protection needed as per point 6), some could unblock them knowing that they would be more ethical (again, just a concept). this would be a problem though as most visitors would have an ad-blocker regardless.