Should every minecraft server be checking if any arbitrary sequence of blocks on that server can encode to a binary representation of CSAM which when hashed matches something in the NCMEC database?

You could argue that a minecraft server is technically in possession of CSAM if that's the case, but you could spend an infinite amount of money looking at various possible sequences and are bound to find many more false positives than true positives.

Services should have a duty to report CSAM when they notice it, but the lengths they should go to search for CSAM should be limited by cost/benefit and privacy concerns.