Blockchains like Ethereum verify transactions by having every participating computer (node) process and store them. That design is what makes the network trustworthy and decentralized, but it also puts a hard limit on how many transactions the base layer can handle at once. When demand spikes, the network gets congested and transaction fees ("gas") rise sharply, since users are effectively bidding for limited block space.

A Layer 2 is a separate system built on top of a base blockchain (the "Layer 1") that handles transactions off of the main chain, then periodically reports a compact summary back to it. Because the base layer only has to process that summary rather than every individual transaction, Layer 2s can offer much higher throughput and lower fees while still relying on the base layer for security.

The most common type of Layer 2 today is the rollup, and there are two broad approaches. Optimistic rollups assume transactions are valid by default and post them to the base layer along with a window of time during which anyone can submit a "fraud proof" if something looks wrong; if no challenge is raised, the transactions are treated as final. Zero-knowledge (ZK) rollups instead generate a cryptographic proof that mathematically demonstrates a batch of transactions was processed correctly, which the base layer can verify quickly without needing a challenge period.

In both models, the Layer 2 inherits its security from the base layer rather than creating its own from scratch: transaction data (or proofs of it) is ultimately anchored back to the base chain, so disputes can still be resolved using the base layer's consensus rules. This is different from an entirely separate blockchain, which has to bootstrap its own independent security.

Several rollups following the optimistic model and others using zero-knowledge proofs are already used to scale Ethereum in practice, generally trading off some added complexity (like withdrawal delays on some optimistic designs) for significantly lower fees and faster confirmations. This is a general explanation of the technology category, not an endorsement or investment recommendation of any specific project.