I don't think cryptocurrency can completely replacing the the FIAT. FIAT is controlled by government and i don't think government will allowed that and also the risk of the cryptocurrency like your crypto can be gone due to hacking or system issues. There is so much unknown and risk behind it. So i don't think it is possible.
Correct, governments are never going to let their fiat disappear they depend heavily on printing their own currency and if they did not had that power governments will need to be way smaller, so we are currently in a very interesting moment in the history of the world if bitcoin is defeated then we are going to be headed for a world that is completely centralized with all powerful governments but if bitcoin wins then we are going to see governments that are going to be very small.