Ethereum, just like any other blockchain, can be visualized as a transaction-based state machine. This definition is mentioned in the Ethereum yellow paper written by Dr. Gavin Wood.
The core idea is that in Ethereum blockchain, 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:
In the preceding example, a transfer of ...