There's the online use of money but it's based on physical cash

Bitcoin: a digital currency with known & limited supply, an open global network, and not controlled by politicians. US Dollar: a digital currency with unknown & unlimited supply, a highly restricted territory-based network, and controlled by politicians. Which will win, longterm?

I agree but how exactly is the US dollar digital? There's the online use of money but it's based on physical cash.

It is not based on physical cash at all. That is a myth. 97% of USD is digital, and about 3% is physical cash. The cash is more like a novelty token that represents a tiny fraction of the money supply.

Bitcoin doesn't have the properties of a currency, nor is it being used as a currency, nor are there incentives for it to start being used as one.

How does it not have the properties of a currency? The main criteria of a currency is to act as a store of value that is easily exchanged for goods/services. It will be used more and more as the infrastructure grows. We're still in 'Early Adopter' phase on the adoption curve.