Ethereumwill transition from proof-of-work (PoW) to proof-of-stake (PoS) with the update “The Merge” expected to be completed on September 15. Coinbase shared four key risk forecasts ahead of the most anticipated upgrade.
As Ethereum developers and users continue to eagerly await the merging of Ethereum Mainnet with Beacon Chain on September 15, there are only a few hours left until the update. Also, the Merge progression is now 99.76% complete, making a significant progress.
However coinbase Cloud shared its estimates of potential risks associated with Consolidation. These were published on four different topics, including technical, operational, economic and customer diversity risks.
Technical Risk: Since Ethereum Merge is the most anticipated and technically complex upgrade in crypto yet, the probability of bugs and technical glitches is actually quite high. It also involves the merging of two blockchains, the execution layer Ethereum Mainnet (PoW) and the consensus layer Beacon Chain (PoS), which are completely different from the hard fork.
Execution layer clients Go Ethereum (Geth) and Nethermind have announced that they have detected errors in their upgrades. Almost all customers experienced issues with the release. However, fixes were also quickly released. In addition, the developers have also issued important warnings about running and upgrading customers’ versions.
Operational Risk: After the Bellatrix hard fork, the involvement of validators and node operators decreased as some failed to upgrade their clients. Client releases, testnets, last minute client releases, etc. Many things are happening at the same time in the background.
The developers recently announced that around 25-30% of validators went offline after the Sepolia upgrade due to configuration issues. Consolidation is already here, but only 85% of nodes have been upgraded to the latest client versions.
Economic Risk: PoS migration will disable miners as validators will be responsible for block generation. Also, Ethereum miners have a different technical basis than Bitcoin mining and use GPUs. Therefore, miners may have to switch to other existing mining systems.
Ethereum PoW fork can cause some critical issues in dApp, DeFi platforms and other systems. The high usage of ETH and replay attacks are the main concern, especially in lending and lending protocols like Aave.
Lack of Customer Diversity Risk: Lack of customer diversity increases the risk of one consensus customer becoming dominant among other customers. The client can violate the consensus and propose block validation on their own terms. Currently, Prysm owns approximately 44% and Lighthouse 34%.
Ethereum’s transition to PoS will deflation ETH price due to the EIP-1559 burn mechanism. However, deflationary prices will mostly depend on gas fees and validators.
Ethereum price is trading above the $1500 psychological level. But any risk could cause the price to drop below the level. At the time of writing, ETH price is trading at $1,625.