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.
Cryptocurrency was not created in a physical form so that it cannot be held like fiat money, and ordinary people will always consider fiat more useful than cryptocurrency because fiat can be held, but on the other hand, cryptocurrency is also more profitable with various conveniences through its services, and for the problem there are some countries that still prohibit cryptocurrencies, it also depends on the country's regulations and the rules of the country, so we don't need to look at that.