A lot of people are saying this isn't possible, theyre wrong. It's called "Server Side Ad Insertion (SSAI)" and tldr it places the ads directly in the video itself. One of the popular streaming services uses SSAI, another uses SGAI. Theyre both something the CDN must implement alongside the client.

The technical explanation: SSAI, at least with HLS, places the ad segments within the media playlist. This means there is no additional and easy to block call to the ad server to ask for ads (that's Server Guided Ad Insertion, SGAI). SGAI places markers where ads need to go in the media playlist, and the client asks the server for some ads to place there.

There's also CSAI which is fully client side (the client decides where to place ads and how many) but I'd like to doubt youtube uses this. Doesn't seem very smart.

Even if, lets say, youtube baked the ads into the content segments, it wouldn't solve anything. There will still be markers and metadata to find where they are (the client needs these to notify ad partners you watched the ad, and to display the yellow "ad" markers, and to display a timer) which can be used to skip them client-side with an extension.

Overall YouTube probably won't win because there's always something to do to bypass ads. Some methods are easier to bypass than others, but they're all enforced client-side in the end. The only thing they could possibly do to have even a fraction of a chance would be to block you from getting the next content segments until the ad duration has passed in real-time. That's a last resort, however, because that will likely hurt QoS and client stability. There's a reason it isn't already done. Don't forget, also, the developers who work on this stuff don't like ads either. Nobody is going out of their way to prevent ad blocking beyond what the execs want, and the execs don't know what they want.

Do note that although I specify HLS there is likely little to no difference with other streaming tech, I just want to be clear about my experience.