On the first part, I don’t see it as a technical obstacle, but a financial one. I.e. hardly anyone will be able to afford a UTXO.
On custodial KYC, I see it as: the more popular a custodian grows, ...
Most people will never own a UTXO directly. Most will spend their entire lives receiving bitcoin directly in lightning or other layers. Some people call that a failure of layer 1, but that's just how systems scale. Even fiat.
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