It started with reports on NeoGAF that extremely rare 'new/old' stock of original Xbox One consoles - the so-called 'VCR' or 'set-top box' model - were unable to function owing to the lack of a system software update for the hardware. Used consoles sold on eBay and factory-reset also have the same issue. Based on our own testing from Xbox One consoles brought out of storage, systems operating on older firmware revisions error out when connected to Xbox Live. We've informed Microsoft, we're confident the problem will be fixed, but the situation raises awkward questions about the future prospects of console hardware reliant on an internet connection to fully function.
Let's be clear about what we're talking about. As far as we're aware, the problem does not impact 2016's Xbox One S hardware revision. We're talking about the launch model, the set-top box edition. And it doesn't apply to all consoles - if every single Xbox One 'VCR' out there couldn't get online, I'm sure we would have heard about it sooner. It seems to be Xbox One hardware that is running older firmware that has the biggest risk of not being able to update. Two of our consoles are running 2017 dashboards, the other a 2018 revision. None of them can update - not from the internet, nor from USB via the downloadable offline installer.
By extension, we can assume that any affected console that can't update that is then factory reset (perhaps by a user looking to resell the console) cannot function at all, effectively 'bricking' the hardware until Microsoft can come up with a solution. If affected units aren't reset, the dashboard works, games running from discs works, but anything requiring an online connection won't function. Without access to the latest system software revision, it's impossible to access Xbox Live or any of its features, and we can safely assume that digital purchases requiring an online check-in also won't work unless the machine is set-up as primary account holder or 'home console'.