The rest of the environment is irrelevant ...Is the rest of your environment protected?
Patching does not quite cover the gravitas of your task ... this isn't about reversing jumps, this is about replicating the input/out behaviour of a blackbox. The dongle isn't just returning a "legit/not legit" signal, it is returning substantial amounts of computed data created by unknown parts of the original program (enough to make LUT attacks impossible).Because if it isn't I could e.g. make an image of the HD, load it in VirtualBox, find a way to shoehorn SoftIce/Ollydbg into it (it's a Windows-based OS, right) and patch your dongle protection.
It's important to note that the encrypted code running on the dongle only runs on that specific dongle, the dongle is tied to an account and the encrypted code for it is supplied during activation. You can compromise the rest of the system and look at it, but it won't do you any good without the secret key (which the dongle knows, but for which you need those probes on a <90 nm circuit to find out).
With the dongle tech it would be trivial to only allow the special consolized versions of the games to be activated on the official Valve boxes (the consolized versions are almost the same as the normal version BTW, the executables are the same they just come with profiles and install/configuration scripts to integrate them into the consolized environment). Personally though I'd say that if you can make it for 50$ less more power to you. I think the official stamp of approval and knowledge that the exact hardware spec. will be used during QA justifies the extra 50$ ... those which find it doesn't justify it (or who want the convenience of a consolized UI with more powerful hardware, at the cost of a larger potential for incompatibilities) can buy your solution. They will want Steam games either way.Do you expect to make a profit on hardware? Because I could just open one of your boxes, see what's inside and clone it as everything's off the shelf, then sell it for $50 less.
Hell, if you make a really stylish box I might even allow you to add it to the official line-up for a small fee. This is the PC world, where we can make money without being anal retentive control freaks.
(I'm being hopelessly optimistic about Valve here, but that's just what I would do if I were them.)
The console doesn't tie Steam to the hardware, it just provides a way to play Steam games in a rock solid environment with all windows configuration, gamepad support issues etc etc well hidden away ...Note that I have nothing against your idea, I just don't think it's financially sound. Steam as a service makes a lot of sense to me, but tying it to hardware you can get elsewhere for less money does not.
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