Well done MA, you've just created the second-worst item upgrade system ever devised.
Why not just remove the requirement for a second item altogether? It is pointless and stupid, and it doesn't add anything at all to gameplay except a chance of losing expensive stuff either to the system or to a scammer.
If you can't get to 100% salvage rate, then this change is no better than the first system. The problem is the risk of loss. Whether this risk is 1%, 5% or 10% doesn't really matter. As long as there is ANY risk of loss, this system is useless.
Now if you can get to 100% salvage rate, it's a different story.
If it's a low-end item then it should be simple enough, just buy one off auction or borrow one from a socmate, job done. But what is the point of that? It adds NOTHING to the game except for a bit of annoying time spent getting an item.
You might as well say that to unlock the upgrade we have to swim round the coast of Eudoria - that would be equally trivial, pointless and unrewarding.
If it's a high-end item then most people will have to open themselves and others up to massive risk by borrowing or lending items. And again, even if you trust someone completely, what is the point? You give me your item, I do the upgrade, I give it back - there's no challenge, there's no added depth, it's just utterly pointless and the only people who can get anything out of it are thieves and scammers.
How many scams need to take place before you change this again?
Just remove the requirement for the duplicate item!