Cryptocurrencies ― Legitimate challenge to Fiat Money?

Blockchain―the underlying technology behind crypto-currencies―is a ‘digital’ ledger that records transactions among various participants via a ‘peer-to-peer distributed network’. The primary feature setting it apart from other payment systems is that it keeps a permanent public record of all transactions since its inception, verified through a decentralized user consensus system. From an audit perspective, it could be a revolutionary tool. The immutability of blockchain could significantly reduce the laborious sample-based substantive testing because you can essentially get coverage over 100% of the population. That being said, blockchain has certain limitations as a payment system that exposes it to a higher risk of fraud. There are many other applications of the blockchain technology but here I am mostly referring to its role as currency in an open system (i.e. permissionless blockchain).

The Problem(s): Cryptocurrencies will have to overcome numerous challenges (perhaps insurmountable) before they could potentially function as a substitute for the fiat currencies as a medium of exchange.

1. Governance: Izabella Kaminska from FT says that cryptocurrencies have a 'governance problem'―i.e."who dictates and enforces the rules of the system if and when things go wrong?". This might be one of the biggest (if not the biggest) challenges to the blockchain. It effectively creates a paradox: the point of having a decentralized system is to not have a third party or government managing it, so fixing this problem would essentially eliminate its raison d'être.
2. Volatility: Fiat money is backed by large, complex government machinery and financial infrastructure, which provides it the much needed stability to function as a store of value. High volatility due to lack of a stable ecosystem makes cryptocurrencies highly risky instruments. As a result, the cryptocurrencies fail two classic functions of money: (1) stable store of value and (2) meaningful unit of account to allow goods and services to be compared against each other.
3. Adoption: In the absence an intermediary or government backing, blockchain would have to be adopted by a super-majority, not just the big financial institutions, to become a viable platform. It would be quite a daunting task convincing people to use something they don't fully understand.
4. Monetary Policy: Losing the ability to supply money would deprive central banks of their ability to use monetary policy to stimulate economic activity (and prevent deflation) or be the lender of last resort. Cryptocurrency may function essentially as a foreign currency, and as has been the case for some developing countries, monetary policy can become disconnected from the local economy. It would also take away benefits the US economy derives from the strength of US dollar and deprive US treasury of borrowing in a currency it controls (i.e. US Dollar).

In conclusion, if we tried to fix this new digital monetary system, we would probably end up with essentially the system we already have in place--why reinvent the wheel then? or as the Economist puts it, "Read your Kindleberger"--“don’t forget this has all happened before”:

"Start with A Financial History of Western Europe, in which Kindleberger documents how many times merchants in different centuries figured out clever ways of doing the exact same thing. They made transactions easier, and in the process created new deposits and bills that increased the supply of money. In most cases, the Bürgermeister or the king left these innovations in place, but decided to control the supply of money and credit themselves. It is good for the king to be in charge of his own creditors. But also, it has always been tempting for private finance to create too much money. There is no evidence that money born on a distributed ledger will be clean of this sin."