Ethereum merging is not only about advantages: 2 main risks

Although the Ethereum merger (Merge) was an undeniable technical success, and was well received by the crypto community, some believe that this fundamental change in the functioning of the ETH network brings its share of disadvantages and risks.

This is especially the case of the bank JP Morgan, who shared in a recent report some concerns about the Ethereum blockchain which has just changed from an operation based on proof of work (PoW) to a network based on the proof-of- stake ( PoS), which reduced the energy consumption of ETH by more than 99%.

Risk sharing on the Ethereum community

The bank indeed recalled that this merger that took place at the beginning of the month was done through a hard fork that split the Ethereum blockchain in two, giving birth to the “new” Ethereum based on the PoS system, and on the other side. hand a new blockchain called Ethereum PoW, which brings together people who frown on the Ethereum merger and want to keep ETH PoW alive.

However, JP Morgan points out that several cryptocurrency exchange platforms have shown their support for Ethereum PoW. She also noted that there are at least 19 former Ethereum mining pools active on the PoW blockchain. According to JP Morgan, this therefore implies that the Ethereum community is at risk of splitting, if the ETH PoW continues to gain momentum.

Ethereum’s stake disrupts the decentralization of the ETH network

Another concern raised by JP Morgan is that the “greener” Ethereum price through PoS has the advantage that its Ethereum blockchain is becoming less and less decentralized. In fact, the validation of transactions and the security of the network are now based on Ethereum staking.

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If your ETH is accepted you can become a collector on the Ethereum PoS network. Therefore, those with the most Ethereum at stake will have the most power on the network, “because only a few entities own the majority of the ETH that has been implemented”, it states JP Morgan strongly notes.

Watch out for further decline in ETH

Regarding the fall of Ethereum after the transition to PoS, JP Morgan, like many, asked the question about “rumored buying and selling flows event-specific Ethereum merger event”.

In other words, Ethereum was already advanced in anticipation of the event and investors took their profits when it happened, causing a correction.

Finally, in its report, the investment bank also addressed the downturn in the futures market. Note that backwardation refers to a situation where the spot price of an asset is higher than its price on futures contracts.

According to JP Morgan, this is “a reflection of the move towards more bearish sentiment in the crypto markets in recent weeks”, which is a further bearish sign for Ethereum and other cryptocurrencies.


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