Which is why I'm confused because they already have parental controls and YouTube kids. One would think a small modification or addition to that software would be the way to go. But, we are in the AI age of things.

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Its relative easily understood once you factor in that the age verification BS is not implemented to better control the kids, its for the adults - aka the state owned flock.
It's western governments pushing this. YouTube don't really have a choice. If UK Australia Canada and USA all banned YouTube then YouTube probably wouldn't be able to operate at all.