Earlier Tests Reduced Risk of Merge Failure
Here is quick rundown on possible risks of the merge:
The first risk is technical because the merge itself is a technical feat.
If the Ethereum merge happens sooner than anticipated, there is a chance that things may go astray.
The earlier Sepolia test left 20%-30% validators offline because the merge happened sooner than planned. The next upgrade, called Goerli, fixed that.
Validators stayed in sync and made the Ethereum community confident that Bellatrix — a preparatory step for the merge — would be successful.
Goerli had the most number of dapp and user activity and its merge clearly showed that the debacle of the Sepolia test would not repeat itself. (A dapp is an application on a decentralized network. It combines smart contract capabilities with a user interface.)
For the Bellatrix upgrade, client upgrades announced on Aug. 24 were well ahead of the Ethereum Merge. So, by and large, possible technical bumps have been addressed.
Participation Is Key To Proof Of Stake
The second risk has to do with participation rates.
On a proof-of-stake protocol, a high participation rate among validators is vital to make sure the network is healthy. During Ethereum's merge, a high participation rate among users will make sure that the merge takes place on time.
The participation rate of validators dropped to 96% on Sept. 6, when the Bellatrix upgrade started. But the drop was not significant and it has scaled up to 99% since. So far, node validators and client teams are joining to ensure that blocks are completed on time.
Economic Risks and Rewards of Ethereum Merge
Finally there is the economic risk.
After the Ethereum merge, ETH rewards for validators on the blockchain will be much lower. The upgrade will burn the base fees for every transaction and reward only the surplus fees to validators. Surplus fee is a variable amount that validators may get depending on the traffic on the network.
However, higher economic rewards are also in the cards. After the Ethereum merge, staked ETHs can attract institutional investors, according to a Bank of America report.
The risk-to-reward ratio of staked ETHs is the closest parallel in the digital assets world to government and corporate debt, the study finds.
According to WisdomTree Director of Digital Assets Ben Dean, pension funds and insurance companies are increasingly seeing staked ETHs as a viable investment option. That applies for No. 1 cryptocurrency Bitcoin too. In April, Fidelity became the first investment services company to offer Bitcoin in 401(k) plans.
ETH Outflows Reveal Worry Ahead Of Merge
ETH outflows of $62 million last week reflected concerns about the Merge among institutional investors that something may go wrong despite increasing certainty that the Merge will take place.
More Crypto News From Dow Jones:
Bitcoin Is On A Bumpy Ride. Where The Crypto Rally Could Top Out
How Bitcoin Bombed In El Salvador
Looking For Market Insights? Check Out Our IBD Live Daily Segment
Why Is FTX Ventures Buying A 30% Stake In Scaramucci's SkyBridge Capital?
