In the first part of this series, we discussed what digital assets are and established their inherent value. Now, let's delve into how we determine their value and why it's crucial to assess their worth.
Some digital assets possess intrinsic value simply by existing, while others, like personal photographs, hold emotional value. Utilizing digital family vaults and digital vaults can be instrumental in protecting these assets.
Calculating the value of these assets involves considering two key aspects. The first question to ask is, "What would these assets be worth to someone else?" It's worth noting that the IRS provides guidelines for this.
According to U.S. Treasury Regulation § 20.231-1(b), an asset's value is "the price at which the property would change hands between a willing buyer and a willing seller, neither being under compulsion to buy or sell and both having reasonable knowledge of relevant facts."
The value of your intrinsic digital assets, therefore, is determined by what someone else is willing to pay for them. While you may not have an exact figure, you can make a reasonably close estimate, which is useful for assessing your digital worth.
The other question you need to address is, "What would I pay to recover these assets?"
This question is arguably more critical as it encompasses both intrinsic and emotional value. If your computer's hard drive crashes and you lose everything, what would you pay to retrieve your data? You may have purchased 1,000 songs at $0.99 each ($990), but would you pay that sum to recover them all? Probably not. Some of those songs may hold less value to you now.
On the other hand, those precious photos of your children when they were young are irreplaceable and hold immeasurable value. You might be willing to pay thousands of dollars for them, even though they lack intrinsic value.
Consider the user names and passwords for your frequently visited websites stored on your computer. If your hard drive fails, what would you pay to regain access to your bank accounts, IRA, 401K, etc.? Perhaps the more critical question is not what you would pay to recover these assets, but what you would pay to prevent their loss or unauthorized access. This is the value you should assign to each of your assets.
In 2011, the security company McAfee conducted research on the value of personal digital assets. Adjusting for inflation, an average American's digital assets were worth approximately $60,000 in 2014!
This leads us to the question, "Why should I care about my digital net worth?"
The answer is simple. Understanding your digital net worth is essential to determine how much time, effort, and money you should invest in safeguarding these assets. Ultimately, it boils down to ensuring that your digital assets remain accessible to you and out of the hands of others.
It's well-known that any safe, vault, or lock can be compromised with enough resources and time. Therefore, it's prudent to protect your assets with security that makes the effort and time required to breach it exceed the value of the property. If your assets, whether physical or digital, are valued at $60,000, then spending $15-$20 a month to keep them secure is a reasonable investment.
Just as you wouldn't hesitate to spend $50 on a high-quality lock for your front door or $100/month to insure a $30,000 automobile, safeguarding your digital assets is equally important.
Many individuals neglect their digital assets and digital net worth, often spending nothing to protect them. Yet, unscrupulous individuals are aware of the value of these assets, and if left unprotected, they are at risk of losing them.
As businesses bolster their security, hackers seek out vulnerable targets. Why target a bank with its robust security when it can instead target individuals, using stolen information to access the bank's systems?
You do have digital assets, and now you understand how to assess their value. In part three of this series, we will explore steps you can take to safeguard your digital assets and ensure their seamless transfer to others in the event of unforeseen circumstances, just as you would with your physical assets.