There is a modchip involved. It's just not a mod or a chip. It's a USB dongle. It's not like they're able to crack your PS3 through the fourth dimension or anything.
Correct me if I'm wrong, but this is how the hack works. I probably am wrong, because Firefox isn't letting me anywhere near their website.
First, you put your Blu-ray into the PS3. Then, you copy all 20GB of data over onto the hard drive. Fair enough.
Now, let's see how this can lead to piracy.
First, you buy a handy Blu-ray drive for your computer. Then, you upload 20GB of data onto the internet. Then, someone at the other end, who, naturally, has a Blu-ray burner, downloads the 20GB and burns it onto the Blu-ray disc. They then put the disc into the PS3, copy all 20GB over, and then they can play the game.
I don't see this becoming very widespread.
(Former) Lead Moderator and (Eternal) VGC Detective 
