Am I wrong?
Yes.
You have a lot of assumptions in there that are unsupported and lots of hand-waving away problems, two to start:
1. Top level domain? Bitcoin doesn't care about TLDs (assuming you are talking DNS TLDs). So a single big ISP would be mining limited since all the IP addresses are under one TLD regardless of how many individuals are under that ISP? What if a single miner has 80% of the network behind a single IP with NAT?
2. Physical location? How are you tracking this? What about Tor, i2p, VPNs etc?
PKI is about the only way to make this practical and enforceable, and having signed blocks is a new coin.