Bitcoin is often described as a distributed ledger which facilitates a decentralized currency using cryptographic tools.

A cryptocurrency behaves like a “normal” currency because of the rules governing the modification of the ledger. For example, a Bitcoin address cannot spend more Bitcoin than it owns. These rules underpin all transactions on Bitcoin and many other blockchains.

While Ethereum follows almost the same exact rules, it also enables a much more powerful function: smart contracts. For this complex feature, a more sophisticated analogy is required. Instead of a distributed ledger, Ethereum is a distributed state machine.

Originally posted on mirror.xyz

State

The World State is a data structure made up of smaller objects representing accounts. An account is a mapping between the address and account state. The world state consists of objects that have an internal state.

Structure of State

More accurately, the World State is stored as a Merkle Patricia Trie where accounts (and account data) are the leaves on the tree. The root node, and all the other intermediate nodes, are computed by hashing the hashes of the leaves/nodes below them.

Any change in the data on the leaves propagates to an inconsistency higher up the trie.

The value of a node depends on the value of the leaves.

Why hash a tree instead of the data itself? Merkle proofs. They allow us to authenticate large amounts of data with just the root node of the tree containing the data. More about Merkling

Transactions as State Modifications

The EVM behaves like a math function - given an input, it produces a deterministic output. The EVM takes in the current state, applies some transactions on it; and outputs the next valid state - * a state transition function *.

f(s, t) = s'

Where:

s is an old valid (world) state;
s’ is the new (world) state;
t is a new block of valid transactions;
f is the state transition function.

The definite rules for changing state from block to block are defined in the EVM.

Transactions as state modifications

Each transition modifies only some parts of the world state - account states with transactions executed on them.

There is a lot to transactions that I didn’t cover, but it’s about how transactions are executed and confirmed, and does not relate to state transitions.

State change within an Account

An account is a mapping between an address and the account state.

The account state consists of four fields: nonce, balance, codeHash, storageRoot.

Nonce: the number of txs sent from the account. It prevents a tx from being processed more than once. For a contract account it represents the number of contracts it has created.

A transaction, by a human owned account, changes the nonce and balance in the account state.
A tx, by a contract account, also changes the storageRoot (storage hash) in the account state.

Ethereum's account structure

State storage

So where is all this data stored? The blockchain implicitly stores state in the block headers, along with other data.

Each block header contains the hash of the root node of the World State Trie

An archival node might store all txs and the resulting state transitions (including invalid states) for all blocks in their local disk. This will require large disk storage and is not strictly necessary.

Conceptually blockchain data can be separated into:

Chain data: the list of blocks forming the chain.
State data: the result of each state transition.

The chain data must be stored, to ensure verifiable custody (or transfer) of assets. But old state can be discarded, as its value can be known only from computation.

So currently, while both chain and state data are stored locally on the node’s disk, only the chain data is strictly necessary.

Conclusion

In essence, state is exactly what it sounds like. It is the status or condition of each account on the Ethereum blockchain, stored across nodes participating in the network. And the EVM, as a state transition machine, executes operations on this shared world state as requested by users and contracts.

Ethereum, taken as a whole, can be viewed as a transaction-based state machine: we begin with a genesis state and incrementally execute transactions to morph it into some current state. It is this current state which we accept as the canonical “version” of the world of Ethereum - The Ethereum Yellow Paper

Sources and references

And tons of random question on the internet!

Thanks for reading :)