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One of the data structures created by the protocol is the Ethereum Network State, or simply the State. This database identifies the balances of everyone’s current ether and token holdings and stores the variables of each smart contract. In this way, the state is responsible for explaining ‘who owns what’. The state database is derived from the blockchain, the system’s transaction record. As a full node is verifying and downloading new blocks to its blockchain database, it is verifying the transactions in each block and modifying the state accordingly.
Consequently, when nodes are onboarding to the network they are constructing the state as they are initialising their blockchain database. Once they are up-to-date with all other nodes on the network, and have therefore completed the verification, blockchain download and the state construction process, they then begin to listen for new blocks.
As nodes listen for new blocks proposed by validators, so long as the new blocks break no rules, the full nodes verify their transactions and append their blockchain while also updating the state. Thus a full node’s state is under continuous maintenance to ensure correct identification of the balances of all ether and Ethereum-based token holdings.