To talk about cryptocurrencies, we first had to define what currency is. Currency is something people used to exchange each other for goods and services. Centralized currencies like USD, EUR, or Gold are backed by central banks of the given country. Unlike these, cryptocurrencies don’t have any centralized backer similar to a bank. Since they are used in decentralized applications, cryptocurrencies follow the rules of the network they are being used.
Most popular cryptocurrencies today are rewarded from the blockchain network for the amount of work put on the network to verify transactions. For example, when a miner node verifies a block in the blockchain, it receives a reward. This reward is called a Bitcoin in the case of the Bitcoin network. Similarly, it is called Ethereum for ETH network.
Cryptocurrencies are stored in the encrypted wallets of each user. When a user sends a certain amount of cryptocurrency to an another user, that amount of cryptocurrency minus the network transaction fee is transferred to the wallet.
The statement that cryptocurrencies will replace the money is the same as switching to another currency or asset in the given system as long as it is accepted for both parties. You can think of using it when buying coffee if the coffeeshop accepts it. Since the cryptocurrency is a digital asset, the price of the coffee is transferred from customer wallet to coffeeshop’s wallet.