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YouTube is testing server-side ad injection to counteract ad blockers
(alternativeto.net)
Privacy has become a very important issue in modern society, with companies and governments constantly abusing their power, more and more people are waking up to the importance of digital privacy.
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Look up how HLS (HTTP Live Streaming) works. They just need to generate a personalized playlist for each person which points at things already hosted on CDN, and insert the ads where they want in the literal text file that your video player reads from to serve you the video.
I don't know much about it, but it looks like there's specific tags designed for dynamic ad insertion. Idk if YouTube plans to use them in this case though, if they want it to be undetectable to the client.