The drawback of physical tokens is that you can't use them online. I don't want to spend an hour waiting in queue at the city hall for something I can do online in 10 minutes.
The ideal state is having both physical and digital ID. But that will lead to a slow erosion of the willingness to carry physical ID, even if it stays available (which I believe it will for many decades. Even if national ID cards and drivers licenses were to go digital only, passports won't)
But you CAN use them online. Smart card readers are nothing new, and quite cheap.
I use credit cards online all the time. I have logins for government services so I do not need to queue (I had to verify my ID using an app once for one of them). Getting a new driving license (for a change of address) was done online.