That just makes absolutely no sense.  There's no real or accurate way that people would use chips in their body for payment, or reason that that would happen and you're presenting this as if it's fact.  You even claim that cash will disappear when cash is and will continue to be a useful means of payment.
By being useful in day to day life - helpful because it's decentralised so if people were concerned that their credit cards, which they would most likely still use weren't protecting their privacy they would use Bitcoin (and especially so if they wanted their currency to deflate).
It is a second currency.  A government doesn't have to say that Bitcoin is a currency for it to be a currency.
Other cryptocurrencies will either be still just used for meaningless trading, or if Bitcoin turns out not to be scalable, there might be cryptocurrencies for different specific purposes (or cryptocurrencies might cease to be used).