ACCA Strategic Professional · Strategic Business Leader · Enabling success: disruptive technologies
Verdane Insurance plans a smart contract that automatically pays crop-insurance claims to farmers when a weather data feed reports rainfall below an agreed threshold. The board asks what the main risk is that is specific to this design. Which is the most relevant?
The key risk is that the contract executes automatically from coded terms and an external data feed. If the feed is wrong or the code is flawed, incorrect payments can be triggered and are difficult to reverse, so governance over code testing and data sources is needed.
- AThe contract executes automatically on the data feed, so errors in the feed or in the coded terms could trigger incorrect payments that are hard to reverseCorrect
- BSmart contracts cannot be used to hold any conditions about payment
- CBlockchain transactions are always processed more slowly than manual claims
- DThe farmers will no longer be able to see the policy terms
Explanation
Smart contracts are self-executing code, so they depend on accurate coding and on the reliability of external data sources (oracles). Once triggered, payments on a blockchain are typically irreversible. The other options are untrue: conditions are the core of smart contracts, and terms are normally visible.
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