In a 2-of-3 multisig wallet, one of the three keys is permanently lost. What follows?
Correct answer
Answer C: The two remaining keys are still enough to spend; one key alone is not enough.
Quick explanation
In 2-of-3 multisig, two valid signatures are enough. Losing one key therefore does not automatically block access, but one key alone is still insufficient to spend.
Detailed explanation
Multisig describes a Bitcoin spending condition involving several keys. In 2-of-3, the wallet policy specifies three public keys, and two matching signatures suffice to spend an associated UTXO. The keys may belong to different people, devices or locations; they need not belong to three people. If one key is stolen, the attacker still cannot spend alone. If one is lost, two others remain available for recovery.
The additional resilience brings greater organizational complexity. Simply storing three seed phrases separately is not enough. Reliable recovery also requires the wallet policy, participating extended public keys, their order or descriptors and relevant derivation information. A documentation error can prevent existing keys from being associated with the expected addresses. Multisig is not an automatic inheritance solution either. Responsibilities, replacement devices, signing procedures and emergencies must be tested. It is worthwhile only if the added complexity can be managed.
Example or everyday application
One key is at home, one in a secure external location and one with a trusted person. A payment requires two devices; losing a single key does not automatically block access.
Common misconception
Multisig is often confused with splitting a seed phrase or obtaining three human approvals. In 2-of-3 multisig, the script requires two of three valid signatures; the wallet policy must also be backed up for recovery.
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 Core - Output Descriptors
This source is mainly intended for developers. The relevant information may therefore be harder to find.
Check original source