Bitcoin will never replace fiat. Bitcoin have their own target and it's digital currencies. If bitcoin have physical unit like fiat, maybe bitcoin can replace it.
Bitcoin never replace fiat money even bitcoin have physical unit like fiat, the problem is which countries would adopt bitcoin to replace their own currencies.
I agree with the fact that Bitcoin will never be able to replace fiat but Bitcoin in physical form as you are saying can only be spent if you are connected with internet. Fiat money in physical form can get spent anywhere without the need of an internet connection. These are very important differences.