The TL;DR is that the organization that controls the HDMI standard won’t allow any open source implementation of HDMI 2.1.
So the hardware is fully capable of it, but they’ll get in trouble if them officially implement it.
Instead it’s officially HDMI 2 (which maxes out at 4k @ 60Hz), but through a technique called chroma sub-sampling they’ve been able to raise that up to 4k @ 120Hz.
However there are some minor reductions in picture quality because of this, and the whole thing would be much easier if the HDMI forum would be more consumer friendly.
In the meantime, the Steam Machine also has display port as a completely issue free display option.
Chroma subsampling is because they don’t have the bandwidth for 4k120@RGB, not because HDMI won’t allow it. The two things aren’t related.
The HDMI version is what determines how much bandwidth you have available.
HDMI 2.0 has a max of 18GB/s bandwidth, which is why the Steam Machine has to do chroma subsampling to go above 4k@60Hz. HDMI 2.1 ups that bandwidth to 48GB/s, allowing higher resolution/refresh rate.
The physical hardware is HDMI 2.1 capable and can do that if the device is running windows, so this is entirely the HDMI Forum limiting the capabilities of the device because it’s an open source device.
Right, but they have to use chroma subsampling on hdmi2.0 because HDMI won’t allow an open source driver for HDMI 2.1