Why do we need a home button at all?
On an iOS device this is the button to interrupt processes, halt apps, get to the main menu to choose another thing you want to do. To check weather it is really you. To amort a hanging app… Most of us would agree that it serves needed functions.
Cool thing about iPhone is that there is a built in feature called assistive touch.
Settings > General > Accessibility > Assistive Touch
What is the difference between a real button and a software simulated virtual button?
Just make the terms clear: a real button is a hardware supported button, a virtual button is a software supported button without special hardware.
This is probably sad to hear, but a virtual software button would slow down the machine and would make it less reliable. Probably not significantly, but it would.
When pressing or touching a hardware button a hardware interrupt will be generated, so the software processes in the machine will really be interrupted. A software simulated button could not do this directly.
Also if an app or the OS has problems, e.g. it hangs or slows down, it might happen that the software button will not be able to respond, process the button presses at all or only with some delay.
Not to speak about how to combine the fingerprint sensors with the screen pixels.
How to handle the case when the screen area was touched or pushed unintentionally.
When to accept the touch on the OS level, and when to use the screen area just for the app running there. (To interrupt processes, the button needs to run on the OS level.)
Why would we want to eliminate the present home button?
A bigger screen area with the same sized phone would be great. Everybody knows this. Because of this it is worth considering the thought, and because of this this question reappears time to time. And because of this it will be solved.
How could it function?
The present button could be handled similarly to a 3D touch. (The 3D touch is also processed by the hardware and not the software, this is its big advantage for our case). So to put the button behind the screen (or over the screen) would be a real hardware solution and not a virtual button solution. (And it is a real hardware challange.)
Apple is probably potent enough (or will be in the future) to move all the present functionality of the home button onto the screen area including finger recognition. This is just a question of time when this will happen. I am sure Apple is already working on it.
Apple would only need to bring 3D Touch to non-critical areas of the screen to make this non-Home button iPhone a reality. Those sensors on the bezel of your phone could do the exact same thing as the Home button already does while you’re in an app.