Layer 1 vs Layer 2 are terms used to describe different approaches to blockchain scalability. Layer 1 refers to the base blockchain network, like Bitcoin or Ethereum, where all transactions and operations are processed directly on the chain. However, Layer 1 blockchains can face scalability issues. Layer 2, on the other hand, is built on top of Layer 1 and aims to improve transaction speeds and reduce fees by offloading some operations from the main blockchain. Examples include the Lightning Network for Bitcoin and Optimistic Rollups for Ethereum.
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