What is the difference between Layer 1 and Layer 2 blockchains?

Layer 1 refers to the foundational blockchain - the base network that maintains its own consensus, security, and finality. Bitcoin, Ethereum, and Solana are all Layer 1 networks. Layer 2 refers to a protocol built on top of a Layer 1 that handles transactions more efficiently by processing them off the main chain and periodically submitting compressed summaries back to the base layer. The Layer 1 provides the security; the Layer 2 provides the speed and cost reduction. Arbitrum, Optimism, and zkSync all provide this function for Ethereum. The trade-off involves some additional trust assumptions and withdrawal delay periods, which vary depending on the specific technology used. Layer 2 activity has exploded as DeFi users seek Ethereum's security without its historically high fees.