Yes, this will absolutely decrease the number of eligible reviewers. That's a given. But the argument is that it would also help combat spam and fake reviews, so while the number of reviews goes down, the signal to noise ratio goes up. People who read the book without buying it wouldn't be able to review it, yes, and that is an unfortunate side effect. However, it still leads to more useful reviews than if those borrowers are also lumped together with spammers and bots, which make the reviews useless for everyone. It's not a perfect solution, just an improvement over the existing mess (on Amazon).

And yes, agreed that Goodreads needs a different system. I was responding to a post about Amazon, and even there mentioned that goodreads would need something different, maybe reputation based or whatever.