This is never made clear. It's hardware based, as you seem to realize. You and I don't know how it's generated or where it's stored, but Microsoft does. They were intentionally vague about specifics at the time. I'm not sure if that's changed and it doesn't really matter, because it just works...for now.
Upgrading to Windows 10 on an 8.1 key does not invalidate the 8.1 key.
It's not a nightmare. You call the phone number that's presented if and when your copy of Windows fails activation and follow the automated prompts. 9/10 you will have no problem. Windows will give you a long number string to enter on the phone, then they give you a long key in response (though even this may have changed. It's been several years since I've had to manually activate). IF there's an issue, you talk to a rep, tell them you changed your motherboard and that it's the only PC you have that copy of Windows on, and they give you the key. I've done this half a dozen times over the years. Never once have I had an issue.
After that I used the installation process and clean installed Windows 10. If you have upgraded your PC from an older version of Windows you can use your old Windows key for the install.
Best of luck to anyone cleaning up old Windows OS files.
I have had little to no issues since I have used a USB drive to install the OS.
It didn't take long at all to do a fresh install from a USB 2.0 flash drive onto my SSDs. Somewhere between 10-15mins, guestimating on the lower side of that range. Your hardware will come into play a bit with install times.
I had already did the upgrade a long time ago, but was needing to do a fresh install because I was going to be repartitioning drives. Some of the info I'd found early on wasn't clear about doing a clean install w/ repartitioning if you had previously upgraded from Win 7/8 to 10. But to be fair, I was searching based around the fact I thought I needed a Windows 10 key and didn't know where to find it (aside from questionable 3rd party things to get your key).