In the first part of this series, we discussed what Digital Assets were and determined that they have value. Now, how do we determine their value, and why do we care about what they are worth?
Some digital assets are intrinsic and contain value by their very existence. Digital songs you may have purchased are examples of intrinsic digital assets. Other digital assets, such as your personal photographs, only have an emotional value.
How do we calculate the value of what they are worth?
There are two answers to this question and both need to be evaluated to approximate the true value of your digital assets. computer code. The first question to ask is “What would these be worth to someone else?”. It probably won’t surprise you that the IRS has some guidelines on this. The U.S. Treasury Regulation § 20.231-1(b) states that the value of your property is “the price at which the property would change hands between a willing buyer and a willing seller, neither being under an compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”
The value of your intrinsic digital assets is therefore whatever someone else is willing to pay for them. You may not know for sure what that number is, but you can probably come up with a pretty close guess…which is good enough for estimating your digital worth
The other question you need to ask is “What would I pay to get this back?”
This is probably the more salient question because it covers both the intrinsic and the emotional value of your digital assets. If your computer hard drive crashed and took everything with it, what would you pay to recover your data? You may have 1000 songs that you paid $0.99 each for ($990), but would you pay that to get them all back? Probably not. There are probably songs in there that you don’t care about any more. Contrasting that, those pictures of your children when they were young are absolutely priceless to you and there is no way to ever replicate them once they are gone. You might be willing to pay thousands of dollars for those even though they have no intrinsic value.
You probably keep the user name and passwords of your frequently visited web sites somewhere on your computer, don’t you? If your hard drive crashed, what would you pay to be able to access your bank accounts, IRA, 401K, etcetera? Maybe the more important question is not what would you pay to get these back, but what would you pay to keep from losing these or to keep these from falling into the wrong hands? This is the value that you should assign to each of your assets.
In 2011 the security company MacAfee did research on the value of personal digital assets. Adjusting for inflation, in 2014 an average American’s digital assets are worth approximately $60,000!
This brings us to the question “Why do I care what my Digital Net Worth is?”
The answer to that is simple. Knowing your digital net worth is important so that you can decide how much time, effort, and money you want to expend in order to keep those assets safe. This is what it all comes down to…Keeping your digital assets available to you, and out of the control of others.
It has long been known that any safe, any vault, any lock can be compromised given an unlimited amount of resources and time. One should therefore protect assets with enough protection so that the time and effort it would take someone to steal your property exceeds the value of the property. If your assets (physical or digital) are worth $60,000, then paying $15-$20 a month to keep them secure is reasonable. Few of us gives a second thought to spending $50 on a good lock for the front door of our house, or spending $100/month to insure a $30,000 automobile, but how many of us securely protect our digital assets?
More often than not, people don’t think about their digital assets or their digital net worth, so they spend nothing protecting it. There are unscrupulous people out there though that DO know what your digital assets are worth, and if you don’t protect them, sooner or later you will lose them.
As businesses beef up their security, hackers, like predators in the wild, look for the weak as their targets. Why target a bank with all of its security when instead they can target you and then enter the bank’s system with your name and password?
You DO have digital assets, and now you know how to value them. In part three of this series we’ll discuss what you can do to keep your digital assets safe and what you should do to ensure that if anything happens to you that your digital assets transfer to others just as your physical assets do.