If we have the government to weigh in on which transactions are legitimate or not, why do we need a distributed ledger? Cryptocurrencies are trustless, but if we can trust the government to rule on ownership fairly why do we need a trustless system?

>why do we need a distributed ledger?

well the most obvious answer to that question is, we don't.

And it's obviously a wrong answer.

Why do we need fiat currency where self-interested parties inflate the currency & pay themselves?

To say crypto isn't being inflated by behind the scenes players or right in your face players for a matter of fact is wishful thinking. Look at how bitfinex and tether operate. Artificially pumping the price of bitcoin by purchasing with newly printed tether that many sources point to isn't actually backed by money as they claim. Same goes for many of these stable coins. The crypto industry is controlled by a powerful cartel of wealthy figures who use bought influencers and pay for play media outlets. BTC and others are the easiest way for new entities to scam the proletariat. This is no revolution of the common citizen. When a select few own the majority of btc how can one surmise that it is invented for all. For example, one btc maximalist I know claims a 100 million dollar btc is on the way. So we will have a couple thousand btc trillionaires, what a utopian vision.

Isn't crypto plagued with the same problems? Sure fiat isn't perfect but it doesn't look like crypto is solving any of those problems, as exemplified here.

You can trust the current government (maybe), but certainly not future ones, in which case we do need a distributed, trustless system.

What makes hacking illegal?

What if they acquired the Bitcoin without using illegal means

Probably not possible in this case, but in DeFi where everything is ruled by smart contracts, what would make executing behavior allowed by those contracts illegal.

Laws of USA and pretty much every other country reject the notion that "everything is ruled by smart contracts" and assert that legally, as far as their jurisdiction reaches, their law is the deciding factor. Contracts have their basis in contract law. You certainly can write a paper contract which "allows" some illegal behavior, and executing such a contract would be illegal, no matter what the contract says. The same applies for a "smart" contract.

> What makes hacking illegal?

https://www.law.cornell.edu/uscode/text/18/1030

US Law makes hacking illegal

Whatever a judge decides is illegal is illegal.