Interesting question. Since there's a limited supply theoretically on a long enough timeline every BTC will be lost.

Currently Bitcoins can be divided to 8 decimal places, and if eventually that's not enough the protocol can be upgraded.

Correct - you can increase the units in circulation without destroying the purchasing power of those who currently hold the asset, which is a huge advantage over traditional fiat currency.

You can do the same with fiat currencies. It's called redenomination [1].

[1] https://en.wikipedia.org/wiki/Redenomination