Without having paternity established, you cannot exercise your parental rights. Being a part of your child's life can be virtually impossible if you cannot legally claim to be the father. Working with and getting information from schools, doctors, and daycare workers can be extremely difficult to do unless you can show you have the legal right to this information.
Another reason to establish paternity is to make certain that you actually are the father. In reality, you may not be. It may prevent you from paying child support for a child that isn't really yours, or developing an emotional bond that's based on a false premise.