I just signed into YT for the first time in ages to verify this, and you’re right - I am not “verified” with YT, so they won’t let me upload any custom thumbnails. You’re right to not want to give them your phone #, but then again, I imagine they did this because people will game the system, setting a misleading thumbnail for an otherwise unrelated video. (Set the title & image to say, “How to do X” but then the video tries to sell them something else entirely).
But in the end, it’s their platform, as crappy as it is, you have to work within their rules. This is why we need better options for uploading videos. I know you mentioned PeerTube, but have you tried one of these alternatives?