Layer 2 refers to secondary protocols built on top of a blockchain (usually Layer 1) to improve scalability, speed, and transaction costs. Layer 2 solutions, like the Lightning Network for Bitcoin or Optimistic Rollups for Ethereum, allow for faster and cheaper transactions by processing them off the main blockchain. These solutions help reduce congestion and gas fees on the Layer 1 blockchain, making the network more efficient and scalable without compromising security. Layer 2 is key for widespread adoption, especially in applications like DeFi and NFTs that require high throughput.