Not exactly. It's anything for which the legal system is not effective.
For example, you can have a perfectly legal contract, but the other party is in a corrupt foreign jurisdiction that would never find in your favor in the event of a breach. Then you can't contract with them because they have no incentive not to breach, without an alternative method of ensuring compliance that doesn't rely on their corrupt government.
You may also have jurisdictions (like the US) where the process may be more fair, but it's unreasonably expensive, so if you're transacting with parties with a high probability of getting into disputes, something that can resolve them programmatically without litigation is an advantage.
Then there are the false positives. You're not a criminal, but you have bad credit or are from a disreputable country etc., so you're treated as one by the government or the rules targeting actual criminals cause companies to not want to do business with you, and you thereby need some alternative way to engage in your legitimate activities.
What you're arguing is that a perfect system of government removes the need for any alternative. But we haven't got a perfect system of government.