Ep. 17 [Block-creation] Block reference

Note:
Gain a fundamental understanding of Cryptocurrency in an easy way. Before continue reading the story, I recommend to take a couple of minutes and read through the prior article again in order to refresh your present knowledge. The more often you read through the stories, the more confident you will get with the technology behind cryptocurrencies like Bitcoin. Take your time, to understand cryptocurrencies, as a Steemian it's worth it. The pictures are drawn by @RatzFratz, thanks for that!
If something in the story is not clear to you, don’t hesitate to ask. There are several people who might have the same question. So shoot me a comment, if something is unclear. Me and other readers will appreciate it!

---

In the last episode we started to take a closer look at the components of a block. We saw that the individual block-number of a block is the hash of the block-header.

Now lets take a look at the other components of a block-header.

The components "version" and "timestamp" are not important for now. We skip that and start with the Reference.

In episode 14 we defined "Reference" as:

Reference: This numbers is the “Block-Number” of the latest block (NOT Block-Candidate) from the blockchain, which this block-candidate wants to refer. This is very important, we will see soon why.

So, when a miner creates a block-candidate, he specifies on which last block of the blockchain his block-candidate wants to refer. This 'last block' has also a Reference, its last block, and so on...til the first block in the blockchain(=Genesis-Block). This referencing is important to make sure that it is clear at any time who owns how much Bitcoins.

Here's an example which shows the importance of the reference:
Lets say, the last valid block of the blockchain* ist Block84. This Block84 includes the transaction "Bob --> Alice 1 BTC". Next Alice wants to send her received Bitcoin to Charlie. She initiates a transaction "Alice -> Charlie 1 BTC". In the same time a miner is creating the next block-candidate in which he includes pending transactions like the transaction "Alice --> Carlie 1 BTC". The miner is referencing his block-candidate to Block84 as the last block of the valid blockchain.

Because of the reference to Block84, the transaction "Alice -> Charlie 1 BTC" ist legit, as the valid Block84 states that Alice owns 1 BTC (transaction: "Bob --> Alice 1 BTC". ( info: here we assume that Alice got only 1 Bitcoin, from Bob.)

*Note: I want to remind that the phrase "...last valid block of the blockchain..." is only a simplification. The Bitcoin-Network is decentralised thus there isn't a single blockchain. Each Bitcoin-Node in the network is maintaining its own blockchain-register independently of others. So if I mention "...the valid blockchain...", I actually talk about multiple blockchains from honest Bitcoin-Nodes. Because as long as the majority of the Bitcoin-Nodes are honest and follow the official rule-protocol, the majority of the blockchain-registers will have the same listings and look the same.