Bitcoin can not replace fiat because fiat is very powerful and it is government supported so it will be hard for bitcoin to do defeat fiat. It is just good for bitcoin to not replace fiat because it will not succeed and it will just lose some time trying to do that. Skip doing that and focus on other helpful things rather than defeating or replacing fiat.
Correct, fiat is government currency and Bitcoin is independent. Governments will always want to control their currencies which is one of the main reasons why Satoshi Nakamoto created Bitcoin. I think both will exist together for a while.
I agree that both will just exist together and no one will be dispose because bitcoin and fiat are required to have a greater feature because bitcoin can help fiat to have a greater payment system which is really needed as of now to avoid wasted efforts and less hassle but fast payment. Fiat will always exist together with bitcoin because that is the traditional currency that already existed a thousand years ago and the government will do everything just make the fiat stay in the world.