How do economic and financial policies in government deal with cryptocurrencies? Given the decentralized nature of cryptocurrencies like bitcoin and ethereum, how can centralized organisations like banks and the government create policies around it without changing the way traditional economies work?

I have read a little bit about Japan accepting bitcoin as legitimate payments, and also countries like Japan, Russia and Estonia wanting to create their own cryptocurrency so it definitely appears to be something that is going into mainstream finances soon.

Can someone explain how a typical government would deal with this?
In order to increase use of a cryptocurrency it could be suggested that the developers making this currency should not seek to develop a medium of exchange which would work separately from the country's currency as an independent currency, but rather seek to work together with it.
Though having a cryptocurrency working with an already existing currency would seemingly result in this cryptocurrency being backed on the by the country's pre-existing currency (which in return would give the same reliability),
nonetheless, to attempt to establish a new method of payment which would be reliable, it is necessary to create a relationship with the country's previously existing currency, regardless of the previous currency's basis
W.J. Luther writes in his paper &quot;Cryptocurrencies, Network Effects, and Switching costs&quot; (Contemporary Economic Policy, 34, 2016, 553-571)

&quot;By anchoring expectations- perhaps by committing to (or refusing to) accept a currency for payment of taxes- a government can effectively determine the medium of exchange&quot;

Hope this helps.