Poor Sega just didn't get the timing right.

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Why did the playstation not have the same piracy problem?

There's a little wiggle track burned into PSX discs that's impossible to duplicate with burners, and it won't boot up unless it sees that. There's workarounds that eventually came out, but console copy protection doesn't have to last forever. It only has to last most of its primary life until the next gen comes out, and PSX managed that.

Everyone knew a shady guy who promised to mod your PlayStation to play burned games, but few wanted to risk turning their console into a brick.

Unless you lived where the Playstation wasn't officially released, then every console come modded and ready to play pirate games!

They did, but apparently everyone has forgotten how prevalent swap discs and modchips were.

They did, eventually. The first PlayStation was relatively easy to pirate for (with a mod chip), but it took a while for that stuff to become available. Someone had to go and manufacture the chips, or reverse engineer the check.

By the time that scene matured, Sega released the Dreamcast right into a more sophisticated piracy scene that could apply lessons learned to the Dreamcast right away.

On paper, Sega had more sophisticated copy protection than the first PlayStation did. But it also released 4 years later.