You can't use ftp:// URLs for <video> elements as far as I know. Standard FTP doesn't even have the concept of progressive download, so even if there's a browser in which it might (sort of) work, you'd still have to download the entire file first. On top of that, you'd have to do broad compatibility testing and I can assure you that mobile will come up short.
YouTube is certainly not required to embed video. But some sort of HTTP- or RTSP- based file access, whether true streaming or progressive downloading, is required.