There are quite a few challenges. The obvious ones are the technical ones regarding the transaction costs and capacity of the network (that may or may not be solved with Lightning.) But those are small ones. The real issue is that bitcoin people seem to have not given that much thought what modern money actually is and what is the role financial industry actual plays in the modern economy. So, some not so organized thoughts on that:

First, what is money? What most people nowadays consider as money is debt, or credit which equals trust. Basically money is the tool to keep the society to figure out who owes whom and how much. Thinking that it would be somehow good that we have a limited amount of debt we can have in the society is, well, mindbogglingly stupid idea in my head. Also removing the trust from the money makes no sense to me, and I really do not know how that could be accomplished (even in bitcoin, you need to trust some third party to assign some value to your bitcoins tomorrow).

And bitcoiners have not given that much thought on the credit side of the money. How is lending supposed to work with bicoin/smart contracts/whatever? One of the more important functions of financial sector is to convert your overnight deposit to my 20 year mortgage. There is literally nothing in bitcoin that would disrupt that functionality.

But let's assume bitcoin comes as a generally accepted currency. Now there are going to be institutions that are going to offer custodian services to hold your bitcoins because it is quite risky for a normal person to hold the actual bitcoins. These are insured against hacking and whatnot. Now, there is a need for lending and borrowing, so one day someone will figure out that if this institution is allowed to lend these bitcoins in custody forward (note, very prudently), the institution is able to offer much lower custody fees. Actually they are able to pay for you to give your bitcoins to their custody. As this institution is very prudent and everyone trusts this institution very much, someone is going to figure out that actually you do not need to get your bitcoins out of the institution to pay for your coffee, but the coffee shop is happy to take as a payment a promise that instead of paying me, the institution is going to pay the bitcoins to coffee shop owner. And almost magically, we have full fractional reserve banking and unlimited monetary supply. Without any regulatory oversight, of course.

Finally, there is no mechanism (either before or after this rebirth of fractional reserve banking) that would anyhow stabilize the value of one bitcoin. I do sometimes read very handvawy opinions that when bitcoin gains traction it somehow naturally stabilizes in value. But that is only wishful thinking, nothing more. If there is no mechanism to stabilize the value, then the value is defined by the ones that are willing to pay the most at any given time and that is for sure not stable. Which brings me to my last point. How delusional you need to be to think that bitcoin is anyhow good "store of value"? I mean, to me, if I want to put my wealth for whatever reason to something that is called "store of value" the one single most important criteria to judge the stores of value would be how well the thing actually stores value. And a highly volatile gambling token is a really bad store of value. (Applies partially to gold as well, but gold at least has some intrinsic value). And that is not going to change until there is a mechanism to keep the token value stable. Currently those mechanisms are called Central Banks.