Why did gold-backed notes appear in the first place? Was it not because of market demand for a more liquid, transactional medium of exchange? Of course this was playing into the hands of banks but gold was not rid of its medium of exchange function so much as people found its natural properties in that regard to be inconvenient and cumbersome.
I see the same thing happening now. Replace papernotes with sidechains and central bank for the Bitcoin protocol.
In certain ways Bitcoin will function very well as a medium of exchange but the nature of its protocol also results some shortcomings with respect to its utility functions and flexibility as an asset class.
Gold's liquidity as a MoE was limited by the fact that it had (a not inconsiderable amount of ) mass.
Bitcoin's liquidity as a MoE is limited, not by anything inherent to its capabilities, but due to the fact that its ability to process transactions is artificially constrained by a production quota.
This is not sustainable.
If that production quota is not removed, then Bitcoin
will be replaced by another cryptocurrency that lacks such an artificial constraint.
The idea that you can keep the production quota in place and the market will tolerate transacting on sidechains while paying expensive the expensive settlement fees needed to keep Bitcoin around as a unit of account is a economic pipe dream.
If the Bitcoin's blockchain is forbidden from being used for transactions, then the market will replace both Bitcoin and any sidechains that depend on it for a less-restricted currency.