Coinbase Breaks Down the Risks Surrounding the Merge

In the final days leading up to Ethereum’s historic “Merge,” the largest American cryptocurrency exchange has provided some insight into the risks associated with the upgrade. 

Coinbase’s Senior Protocol Specialist Ben Rodriguez explained that the Merge may come with technical and operational risks, alongside risks for miners and dapp users.

Risks of the Merge

Per Rodriguez’s latest post, the merge will be “the most technically complex upgrade to have ever happened in crypto.” As such, the possible risk of technical and software glitches appearing upon its implementation is a given.

The Merge will change Ethereum’s consensus mechanism from proof of work (POW) to proof of stake (POS). Proponents of both mechanisms generally agree that the latter involves code complexity that is orders of magnitude greater than the former. 

This risk is compounded by the fact that Ethereum has multiple client implementations, and that the merge requires two clients to run: the consensus layer (beacon chain) and execution layer (Ethereum mainnet).

However, Rodriguez maintains that extensive testing leaves little reason to worry on this front. In fact, the network’s latest shadow fork test went off without a hitch. 

On the operational front, Rodriguez said that node and validator participation going down for the Bellatrix hard fork was an operational risk. This happens when participants don’t have the latest updates and configurations installed. 

Risk on this front may increase given that Ethereum developers were discussing a last-minute client release for the Merge on September 9th. For context, the Ethereum merge is expected to happen on Thursday, September 15th. 

Miners: What to Do?

Ethereum miners after the Merge have it rough. Without POW, they’ll be rendered completely uneconomical and obsolete for Ethereum. Furthermore, the difficulty bomb will make sure that continuing to mine on the existing POW Ethereum chain becomes completely unfeasible with time. 

Furthermore, simply moving to another POW chain – such as Bitcoin – may not be reasonably possible. 

“Most Ethereum miners use GPUs whereas Bitcoin uses ASICs, more powerful processors geared towards Bitcoin mining,” explained Rodriguez. “GPUs are too weak to profitably mine Bitcoin.”

Some Ethereum miners are planning to launch a new Ethereum POW fork (ETHPOW) shortly after the Merge to defend their interests. However, many major Ethereum services and infrastructure providers have already confirmed that they won’t service this fork. 

Nevertheless, the potential for ETHPOW has created some economic complications at the DeFi and dapp layer of Ethereum. Many Ethereum users are borrowing ETH from protocols like AAVE to amass as much ETH as possible before the fork. Theoretically, this will mean they gain ETH on both the POS and POW Ethereum chains. 

This has forced AAVE into some liquidity trouble. The community overwhelmingly passed a vote to pause ETH borrowing given the vast amount of ETH that has been getting lent out. If too much is lent out, there may not be enough to process borrower liquidations, creating the potential for insolvency.