That is correct, and sometimes such free services go away if they don't make money in the long term. I don't want the same to happen to YouTube.

It makes no sense to pay for YouTube premium when you can use ad blockers. Which is why google is removing that option.

Unless you want to compensate the creators of the videos. Both Youtube itself and video creators need to be paid for them to keep going.

One thing I haven't seen discussed here is: how exactly are they going to remove that option? Are they going to embed the ads into the video stream on-the-fly somehow?

One way would be to require logins and then timeout accounts that behave abnormally wrt ads. Given that WASM will be mainstream soon, it will be hard to monkey patch the code to prevent all this.

Youtube can tell if an ad is blocked. They can then refuse to serve the video. Instead replacing it with an image that says "please turn off your adblocker" or the like.

I imagine they’d prevent the page from rendering and display a warning when an Adblocker is detected. Similar to what some publishers currently do.