It seems to me that all of the countries and governments will shift slowly towards digital money/tokens, just like Bitcoin. It seems also that they will try and issue these tokens in a format of centralized blockchain.
That's why I wouldn't be worried about this physical/digital thing, since we are going towards digital nevertheless. It seems to me that Bitcoin and crypto in general have just made this transition faster.
I think digital currencies are inevitable at some point (maybe not in our lifetime) but security technology needs to be stronger. Not sure how most people would feel about keeping their entire wealth themselves and not relying on banks. It would be quite daunting having all your money to look after personally.