That will never happen because cryptocurrency is volatile. For sure the government would not allow bitcoin to replace the fiat money, so risky for people who own bitcoin what if emergency happen and you need money but the price of bitcoin is dumping so you are short, you bought bitcoin at high price. So it's not good idea that bitcoin replace fiat in my opnion.
You are absolutely right. Bitcoin or Ethereum never replace fiat. This would be possible only if everyone in the world used crypto. But there are still many countries where crypto is banned. Also there is no physical form of crypto.