I'm not convinced that a 5 year old can't grasp the concept of virtuality. Minecraft on peaceful mode is just giant blocks being picked up and placed. Even if it were true they don't get that it's virtual (that I don't really understand how that could be true), I can't imagine what long term damage could possibly be done by believing the blocks are real.

I know it's only anecdotal but I was gaming at age 5, and I definitely knew the difference between games and real life.

You're getting a lot of downvotes, which I think is related to the audience you're talking to (computer and game affine) and the fact that Minecraft is generally considered a kid friendly game, so what's the harm?

That being said, it has zombies, creepers etc. and a 5yo can definitely get scared by it. I've seen it happen.

However, I believe any unattended screen time at age 5 to be a much bigger issue in general. The AAP / AACAP recommends a maximum of 60 minutes a day of screen time at that age, and that includes the combined total including TV etc. Many European institutions advocate for a limit of 30 minutes (the AAP recently increased the limit in their recommendations).

Minecraft is a game suitable for kids, but unsupervised media consumption is definitely not a thing at age 5.