It's dystopian because a private company, who in the past has been committed to maintaining user privacy even when it inconveniences the government, is now regressing and going to scan the "private" contents of peoples' phones to see if they have any matches for images that have been added to a government-supplied blacklist. This blacklist is completely opaque to us as citizens; there is no way to audit or review the contents. Additionally because it's using photoDNA, if someone ever did get ahold of even a single entry in the database, they could craft malicious images that fool the perceptual hash algorithm into flagging an innocent image. (Yes, I get there will be manual review, etc).
Furthermore in principle there's no reason this has to be, or will be, just CP. First it'll expand to blatant terroristic images, say ISIS beheading type videos. Then it will progress to subversive material: COVID "misinformation", "domestic terrorism" (read: anyone the feds don't like), the list goes on. This tool and its successors will be used to completely abolish the concept of device privacy and will be used to ruin the lives of anyone who sufficiently pisses off the feds. And that's just in America, god knows what they're going to do with this system in China.