During their keynote at the Chaos Communication Congress, hacking group fail0verflow revealed that they have managed to develop a dongle-less crack of the Playstation 3, but that wasn't the biggest achievement they revealed that day.
A more amazing feat that fail0verflow accomplished is that they have managed to calculate the private keys Sony use to sign original copies of Playstation 3 games. Simply put, those keys will allow hackers to sign pirated and homebrew games as if they were originals.
Playstation 3's security relies on public key cryptography where a secret private key is used to sign original games while a public key is used to verify the signature. Theoretically - and in practice - a private key can never be deduced from its corresponding public key, but due to what fail0verflow described as an "EPIC FAIL" in their signer which creates correlated signatures that were used to leak the private key.
According to fail0verflow, Playstation 3's security is no better than that of the Xbox 360 or Wii, but the availability of OtherOS which allowed homebrew developers access to the system meant that they had no incentive to try to break the system. In the end, Sony's decision to disable OtherOS - in fear of it being leveraged to crack the PS3 - was all the incentive homebrewers needed to start cracking the system, a feat they accomplished in less than 10 months.
All Playstation 3 firmware versions available today will treat games signed with the calculated private keys as original copies signed by Sony itself, and the only known method to combat that is by having said keys banned - with the side effect of having all PS3 games signed with those keys banned as well.
