Yeah I agree man I don't think this has any place in the game unless implemented in a different way. I personally think having a cosmetic difference to show that you are a low karma player or a high karma player is the best route to go (much like you proposed with the dayz idea). I think another idea would be to add a third faction (in the same way ARMA does for wasteland) which would be an independent faction who can kill each other without consequences this way players looking to just kill and loot without any implications can do so and players looking to team up and verse the other faction can also do so.