What happens if the only key to some bitcoin is lost forever?
Correct answer
Answer B: They remain recorded on the blockchain but can no longer be spent.
Quick explanation
The bitcoin do not disappear. They remain locked because nobody can prove that they have the key needed to spend them.
Detailed explanation
Bitcoin keeps no central list marking funds as lost. The blockchain still contains the relevant transactions and unspent outputs. The network can only accept a new spend, however, if the prescribed conditions are met and the required signatures supplied.
If the matching private key is permanently lost, the user can no longer produce that signature. The bitcoin are not deleted, distributed to miners or replaced with new units. They remain visible in the public history but are practically unspendable.
The actually available supply can therefore be smaller than total issuance. How many bitcoin are permanently lost cannot be determined with certainty. Long-unmoved holdings may be lost or deliberately stored for years. Even very old outputs can move later if the key still exists. Key loss thus changes neither the consensus limit nor the issuance schedule; it affects access to already-issued bitcoin.
Example or everyday application
A seed phrase is destroyed without a backup. The associated amounts remain visible on the blockchain, but nobody can sign a valid transaction spending them.
Common misconception
Beginners often assume the network detects lost holdings and redistributes them.
Sources used
Bitcoin Developer Guide - Wallets
This source is mainly intended for developers. The relevant information may therefore be harder to find.
Check original sourceBitcoin Developer Guide - Block Chain
This source is mainly intended for developers. The relevant information may therefore be harder to find.
Check original source