This can't be implemented. Original discs uses specific file structure unreadable to normal drives. In fact, you can only dump the discs because some drives (like the LG 8164B) allow raw reading of disc sectors (this is why dumping a single disc can take about 2 hours or more). If you want to use this feature you'll need to burn the ISO in a disc first, so, the burned copy will have the encrypted GC data but using the standard disc structure of normal DVDs, allowing normal reading and decrypting in Dolphin through this feature...
Avell A70 MOB: Core i7-11800H, GeForce RTX 3060, 16 GB DDR4-3200, Windows 11 (Insider Preview)
ASRock Z97M OC Formula: Pentium G3258, GeForce GT 440, 16 GB DDR3-1600, Windows 10 (22H2)
ASRock Z97M OC Formula: Pentium G3258, GeForce GT 440, 16 GB DDR3-1600, Windows 10 (22H2)
