Transcoding is done in the cloud when required (some containers & encoding formats don't require transcoding, some do). There's a 3 concurrent stream limit when the device needs transcoding, so that might put a hamper on your 1K friends.

I have a pretty large collection of media (double digit TB of ripped blurays and lossless music). I solved that by IP whitelisting access to my Plex port at the router level for my home. All friends who I share this with sign up for their own account, and once I share my library with that account I also set a rule that requires it to be whitelisted.

Because you would have to give your 1000 friends the Plex login to your paid Plex account, and this would likely be noticed and your account suspended.

I don't think that's necessary. They can all have their own logins. Plex allows coarse sharing for free and more fine grained sharing in their paid product.

That's not how Plex works. A library can be shared with any number of users that you invite into your account.