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Steam Family Sharing was conceived as a safe alternative to account credential sharing when families have a shared computer or multiple shared computers, as they would have physical access to such accounts anyway. It worked by having credentials (in the form of session tokens) stored locally and managing permissions on a per-system basis.
The new system still requires mutually used hardware (shared internet connection is not enough, else it won't let you add to family) but is now safely managed on Valve's servers instead. Therefore, all family members must be within the same store region and must have used a common computer at least once recently.