The lowest ADA value was 0.02 USD in the previous bear market. ADA got to this low value a few times from 2018 to 2020. In the summer of 2020, Cardano transited the PoS consensus. In the current bear market, the lowest ADA was around 0.24 USD. This is 10 times higher than in the last bear market. After the switch to PoS, Cardano's security grows along with the value of ADA coins. The ADA value is only one component of protocol security. Another critical factor is the distribution of ADA coins among users and the incentive model that motivates coin holders to stake coins. Cardano is doing 10 times better in its second bear market than it did in the last one. Of course, we don't know if the bear market is over, but in the context of the article, let's quietly assume it is. Let's take a look at how secure Cardano is, what other factors security depends on, and how it could evolve in future years. TLDR The budget for network security must be high even in the riskiest bear market period. The minimum cost of an attack on Cardano is 3 billion USD. Realistically, however, tens of billions of USD. The attacker's demand for ADA will increase the market value and thus make the attack more expensive. It cannot be said unequivocally that the value of ADA is dependent on the value of BTC. Rather, the blockchain sector follows the value of the index of technology companies. Cardano is the more secure the more ADA stakers there are. In order to maintain security, Cardano needs an increasing number of new users. In a bear market, the risk of attack is the highest Security built on the value of coins is not ideal as it fluctuates according to the mood of the markets. Thus, most blockchain networks are the most secure in short bull markets. Security then gradually declines in long bear markets. It is important that blockchains are well-secured at all times, even in the worst bear market imaginable. The security of blockchain networks is based on the assumption that an attack would be costly enough to deter an attacker. However, if the attacker is willing to spend an infinite amount of money, he has a relatively high chance of success. An important factor is the social and economic importance of individual blockchains. The more people who use a given blockchain and are economically dependent on it, the higher the incentive to attack it may be. One variable is the cost of an attack in the context of the social and economic importance of the project. If a given blockchain is used by a small number of users, but an attack is very costly, there is little likelihood that an attack will occur. If, on the other hand, the importance of the blockchain increases and the cost of an attack decreases, the chances of an attack being attempted also increase. It is advantageous for an attacker to wait for the most suitable time to attack, and this may be the bear market when blockchain security is at its lowest. It is extremely important that the project security budget grows with the importance of the network. Bear markets will always be a risky period in which people need to be more vigilant. For most public blockchains, a lower coin value reduces the security of the network. Of course, an attack is not just about mathematics in the sense that one can calculate the exact cost of it and be sure of success, provided one spends a given amount. It is therefore important that security is provided by other factors in addition to the value of the coins. How secure is Cardano In terms of attack success rate, the math is easy. The attacker needs over 50% of the ADA coins that are used in staking. There are currently over 25,000,000,000 ADA staked. This means that an attacker would need to own over 12,500,000,000 ADA coins. In terms of calculating the cost of an attack, it is more complicated because it cannot be assumed that an attacker is able to acquire such a large amount of ADA coins for the same value. If an attacker were to buy all the coins he needs to attack at the lowest possible value in this bear market, he would pay 3,000,000,000 USD for them. Is it realistic that someone would pay such an astronomical sum to attack Cardano, which is currently used by several million people? In the context of the importance of the network, it doesn't make sense now. Cardano is very well protected against attack. Higher demand for ADA coins will lift the market value. An attacker buying ADA coins would increase demand. Moreover, if he held large quantities of ADA, the value of the coins could be much higher in the long run. One can assume that the value of ADA coins could easily be a few dollars by the time the attacker would want to buy, say, the last 10% of the coins he needs to attack. We estimate that the real cost of an attack would be in the tens of billions of USD. We're talking about an attack that would start in this bear market. In the next bear market, or let's say in the next 5 years, there will be many changes in the entire blockchain industry. These cannot be predicted in advance. Nevertheless, we can estimate that the minimum value of ADA coins will be higher than the current one. Is it safe to assume that it will be 1 USD? It would be roughly 4 times more than the current minimum. If that were the case, the minimum cost of an attack would be 12.5 billion USD. Realistically, however, the cost could be in the order of hundreds of billions of USD. Distribution of ADA coins among users The second important component of Cardano security is the distribution of ADA coins. Everyone who holds ADA coins decides for themselves whether to sell them. It could happen that an attacker buys the coins. However, the attacker will never be the only one buying coins. As we said, higher demand for coins will increase the market value. This will attract other buyers. If the attacker did not want to push the market value up, he would have to buy very slowly and ideally only in a bear market. This means that it could take decades to prepare for an attack. The attacker would tie up his capital in ADA coins just to attack Cardano and lose his capital. Economically, it doesn't make sense and the attacker would have to have some other, socioeconomic reason. If most of the coins are held by honest stakers, the attacker has no chance to get coins for the attack. Cardano pays rewards to all stakers regardless of the number of their coins. There will very likely always be a lot of interest in staking, so the attacker is essentially fighting against all stakers who want to get a reward. The technological ease and economical availability of staking on Cardano will grow the distribution of coins among stakers. The distribution of ADA coins has been growing steadily since the start of the project. The higher the coin distribution, the more difficult it will be for an attacker to obtain the coins. Users see staking as a source of passive income, and the rising market value of ADA will only reinforce their belief that it works. Moreover, anyone who bought ADA cheaply in a bear market will be much more determined to continue staking in the years to come. It is safe to assume that some whales will never want to sell ADA coins. They'll only sell rewards. If the market value of the ADA is stable, staking returns are also relatively stable. If the market value is gradually rising, there is no reason to change anything. If it is falling, it may not be profitable to sell the coins at a lower market value. Those who bought coins in the previous bear market and are still in profit can sell in a bear market. This gets the coins from the whales to other smaller stakers. It is possible that some speculators will want to sell in a bull market. They may make a profit, but they will lose passive income. There is a good chance that after the market value of ADA falls, they will come back and buy coins again. An attacker can also do this but runs the risk of not buying back the same number of coins, as large volumes of purchases will push the market value up. This can prolong the preparation for an attack for several years. Correlation of ADA market value with BTC The value of coins of almost all cryptocurrencies correlates with the market value of BTC. This is both a disadvantage and an advantage for Cardano. If the value of BTC goes up, the value of ADA will very likely go up as well and Cardano will be more secure. The lowest market value of BTC was 3,400 USD in the previous bear market. In the current one, $15,700. The lowest BTC value in the current bear market is 5 times higher than the last one. Bitcoin tends to make a higher low in every bear market. Of course, this will end one day. Nothing can grow forever and the market capitalization of all assets has a ceiling. However, it can be assumed that the market capitalization of all relevant blockchain networks will grow, and thus their security can increase. Each project has different mechanisms to ensure security. Therefore, it cannot always be universally claimed that increasing the market value of coins increases security. For example, with Bitcoin, if the growth in the market value of BTC is not double that of the previous halving, the security budget may start to decline. In other words, if the value of BTC were stable over the long term (decades), each halving can reduce security by half if we neglect fees. Even if the market value of the ADA were stable over the long term, Cardano's security would not begin to decline and would remain roughly the same. Like Bitcoin, Cardano has a reserve of coins. The reserve will run out. The survival of all blockchain networks will be determined by the utility allowing enough coins to be collected in fees for rewards. As with all other human activities or inventions, efficiency decides. Blockchain projects, including Cardano, need to move away from dependence on the market value of BTC. The blockchain industry is still very young and therefore irrational. This may change as the number of users grows. Once Cardano has tens of millions of users, and by that, I don't mean stakers, but people who use the network every day, there may be a decoupling from Bitcoin dependency. Amazingly, not even Ethereum has managed to do this yet. It may take another decade for it to happen depending on the adoption rate. The stock values of most technology companies rise and fall together. Blockchain is seen by many as a promising new technology, so we can see a high correlation between crypto assets and the stocks of IT giants. Therefore, it cannot be said unequivocally that the market value of ADA is dependent on the value of BTC. Rather, it can be said that the entire cryptocurrency industry is dependent on the value of an index of technology companies. Among technology companies, there is no leader that has a major impact on the value of shares of other companies. The same will one day be true in the blockchain sector. Currently, the blockchain industry is very volatile which has an impact on the security of blockchains. If the bear market is not over yet and the market drops another 50%, it is possible that the market value of ADA will drop to 0.10 USD. That will still be 5x more than in the previous bear market. I would expect the number of people interested in buying ADA to be huge, so we don't expect the Cardano network to be in danger. It's possible that the distribution of ADA coins would increase even more, and that's good news for Cardano. First of all, we don't think anyone is planning an attack at the moment because there is no socioeconomic reason to do so. Bitcoin and Ethereum are the most adopted networks, so if someone were planning an attack, they would very likely choose these two blockchains. Conclusion Compared to the previous bear market, Cardano has many new technological enhancements such as PoS, native tokens, smart contracts, and much more. As the technological capabilities grow, the utility grows, which is a prerequisite for user growth. New users will pay fees that will be earned by stakers and pool operators. There must be an autonomous economic cycle on Cardano that will provide security. As the number of users increases, the social and economic importance of the network will grow. The higher network effect will have a direct impact on the market capitalization of the project. If Cardano is used by hundreds of millions of users, it is realistic that the market value of ADA coins will not fall below 10 USD. In that case, the minimum cost of an attack would be $125,000,000,000. Realistically, however, in the trillions of USD. It is realistic to expect that if the number of users increases 100x, the market capitalization will increase at least 10x. The blockchain industry is still in its infancy. The vast majority of people only hold cryptocurrencies for now. It is expected that they will start using decentralized services in the near future. Notice that only paid fees can generate profit for blockchains. The main wave of Cardano users is yet to come as well as the most important innovation of the project. PoS and smart contracts were just the beginning. Second layers like Hydra, algorithmic stablecoins, decentralized identity, Ouroboros Leios, and decentralized governance are other things that will push the project significantly technologically and socially. If history repeats itself and in the next bear market the lowest market value of coins is 10x higher again, it can be at 2.40 USD per ADA. This seems like a lot unless the number of users increases substantially. Who knows what will happen in another 5 to 10 years?
