Ethereum, just like any other blockchain, can be visualized as a transaction-based state machine. This is mentioned in the Ethereum yellow paper written by Dr. Gavin Wood. The idea is that a genesis state is transformed into a final state by executing transactions incrementally. The final transformation is then accepted as the absolute undisputed version of the state. In the following diagram, the Ethereum state transition function is shown, where a transaction execution has resulted in a state transition.
Ethereum State transition function
In the preceding example, a transfer of 2 Ether from Address 4718bf7a to Address 741f7a2 is initiated. The initial state represents the state before the transaction execution and the final state is what the morphed state looks like. This will be discussed in more detail later in the chapter, but the aim of this example is to introduce the core idea of state transition in Ethereum.