I think current bad laws and bad governments are the sources of value of decentralization, which is why it's currently overvalued.
Ideal government is as much decentralized as any crypto currency, just because it is controlled by voters just like any crypto currency.
Just give voters who pay more taxes higher voting weight and let voters vote on specific laws instead of representatives and problem solved. Those who only consume public benefits will have 0 voting power. Billionaires who already made their money and make no more money will have 0 voting power too.
This effectively solves welfare state problem. Those billionaires who want to have some voting power can voluntarily donate more tax, no problem here. Voluntary donation of tax is something unheard of right ? Why ? Because everybody believe tax money are used for evil things - that's why everybody who want to donate to society always choose to donate to some charities or non-profits. Everybody seem to agree that tax money goes into evil things, why aren't they putting pressure to fix this so that any good and rich person can honestly put a sticker on own car - "proud tax payer paid 10% extra tax last year".
As far as privacy, I don't advocate to have all payments data open to public, I only advocate to allow government agents to be able to decrypt them if they have a warrant to do so. Also those public servants who have more power than money will have to make all their transactions auditable by other government agents for the rest of their life.
My point is - if government stops doing evil then it's ok to have regulations and centralized solutions to things like identity, credit reputation, travel safety, public roads, etc.