Maybe there could be server-configurable settings to enforce "by-type" replacement, so that only "like" blocks are eligible to be replaced. (E.g. Hull to Hull, Standard to Standard, Advanced to Advanced, metal mesh to biological plant, weapon to weapon, etc.
I am imagining a long list of conversion allowances, where you can convert to any block of lesser or equal value, but not higher value, in the vanilla game. Example: You can convert advanced armor to another color of advanced armor, crystal armor, standard armor, or even hull, but you cannot replace hull with a more powerful armor only with another hull block.