The distinction between Layer 1 vs Layer 2 solutions is crucial in understanding blockchain scalability challenges. Layer 1 refers to the base layer of a blockchain protocol (e.g., Bitcoin or Ethereum), where all transactions occur directly on-chain. In contrast, Layer 2 solutions operate atop Layer 1 networks to enhance transaction speed and reduce costs by processing transactions off-chain before settling back on the main chain. Layer 2 technologies like state channels or sidechains enable greater scalability without compromising security or decentralization—essential for accommodating growing user demands within blockchain ecosystems.