Correct it's built on an L2 of ethereum.
Without going into the technicals too much L2s address the some of the scaling issues of ethereum making transactions cheap. Combined with the POS system ethereum now uses, its the best choice. Cheap fees and it doesn't kill the environment.
The point of tokenisation is to create an ecosystem currency, it's not for buying hotdogs with unless you're using hotdog coin.
I do not disagree with much of the criticism Reddit is getting right now, especially the action taken leading up to this being the reason many of us are here right now.
What I will say though is that this community points system is not brand new and has been operating in the big crypto subs like R/cryptocurrency for some time using MOONS.
Now this system does not prevent the over arching power Reddit can exert on its platform but what it has done is meant is moderators are paid, well paid actually from the one I know personally. The value is determined by market forces so Reddit has little to no control over this.
Also because the points are tokens on the Ethereum ecosystem users can move there points to another wallet that is not controlled/created under the Reddit vault system meaning they can't just be taken away.
Again, this move far from fixes many of the problems with Reddit, causing us to move to the feddiverse but as far as the idea of "points" go it's actually the best system yet.
What makes me laugh is what Reddit did recently forcing users to spend or lose the last iteration of points, this is the kind of thing the new system should protect against.
As @schooner said ethereum uses POS which is environmentally friendly as it uses 99% less energy than the old POW mechanism.
Also yes the account could be blocked but the crypto wallet can't be. As far as tracking goes nothing stops as user selling on am exchange amd then purchasing more from another. Tracking is effectively stopped at that point.