We are not. We are discussing moderation vs no moderation (i.e. where you need to block every troll yourself).

> people can do their own moderation, instead of relying on a central entity which makes the same broad rules for everyone

"People doing their own moderation" includes a community of people who get together, appoint moderators, and enforce their own rules.

Moderation on Minecraft servers are done by admins, just as it's done on MMOs. Both controlled by a central entity. What is the difference?

The people appointing moderators are part of the central entity, unless you mean that the trolls being muted also have a say in it. Show me one such server that is not a tiny one with just a bunch of friends, where moderation is not needed anyway.