> There is no reason the escape key needs to be physical that doesn't also apply to the function keys.
IMO, those are completely different.
The sscape key provides access to a fundamental concept, "go back, undo, I didn't mean it, no!". This even goes beyond humans. E.g, my dogs have the same concept.
Function keys are abstract in a distended way... they mean, generally, some function specific to a certain context that doesn't fit into the general patterns, but is maybe pretty commonly needed in that context.
IMO, the Touch Bar, with text and graphical cues, is better suited. Of course, various software has been written to the F1-12 abstraction, and physical keys are nicer to type on, so it's not all good. But I think this is a case of one step back, two steps forward.