This risk can be mitigated by bridging the real world and the blockchain using oracles. This risk mitigation can be somewhat decentralized using a voting or reputation mechanism. This is by no means perfect, and I'm not aware of any trustless mechanisms for this, but its a problem people are currently working on, and I think there will eventually be a good solution.

I also don't think this is a false dichotomy. Most likely we'll end up at a place with some improvement over what we have today (I'd actually argue we're currently at this point now) but not without all of the limitations.