Interesting video but fatally flawed model that doesn't address external security threats at all.
It is the external security threats that necessitate the need for nation states, governments and militaries.
Internal law and security are a secondary consequence of that essential need.
In any case, even on internal law and security the model completely fails both in theory and in practice:
Criminals often don't have the means to pay fines or have carefully hidden their assets and are very expensive to lock up. So in a free market Dawn Defence will not pursue the mugger because it is not profitable. National Police are already pretty bad at following up all but the most serious crimes but private security wouldn't do it at all.
The idea that multiple security organisations having the ability to use force will co-exist peacefully and resolve things by mediation is completely false and disproven by every gang war, tribal war & civil war in human history.
When there is not a monopoly on the use of force, various force-wielding organisations will inevitably fight it out (and merge) until one wins in a particular defensible geographic area and monopoly is achieved.
Then they will call themselves the government and you are right back where you started.
The profit motive will ensure it, because when you have won, you have the monopoly on the use of force and can charge what you like and make monopoly profits - its called taxes!
So in a sense I agree with you, the government is just the security provider that beat all the other competing security providers and achieved monopoly on the use of force in a geographic area (the nation state).
However there are no alternatives.
We can only seek to limit government to its essential roles (external security, law and order) and keep it out of all the non-essential roles (including creating money).
I disagree because I think distributed, decentralized individuals taking responsibility for their own security are very, very difficult to take over even by the most well-funded technically excellent nation stat armies (see Afghanistan). In my opinion, this "you need us" narrative is pushed by the nation state to keep people in fear. Having a standing army puts the people at more risk, not less. Nations want to take over other nations because of the tax-farming opportunity which is enforceable by the violence of the state. If the people reject that, there is no opportunity to extract from them as they will fight the very concept.
I don't think 1 is accurate. See examples like Detroit Threat Management (now known as https://www.threatmanagementcenter.com/ ).
As for 2, your argument sounds like "We can't have freedom because some day over time it might turn into government." That's a silly argument, to me. I think tribal and gang wars would be less effective if there wasn't a monopoly on "keeping the peace" (which does nothing of the sort). Police respond to crime, they don't prevent. Private, distributed security guards, for example, actually prevent crime before it happens. That's a much better model.
I do think there are alternatives. Many alternatives. I hope humanity evolves its consciousness to consider them. I suggest giving The Most Dangerous Superstition a read. More thoughts here, if interested: https://peakd.com/anarchy/@lukestokes/the-myth-of-authority