Layer 1 is the base blockchain. Ethereum and Bitcoin are both layer 1 blockchains because they are the underlying foundation that various layer 2 networks build on top of. Examples of layer 2 projects include “rollups” on Ethereum and the Lightning Network on top of Bitcoin. All user transaction activity on these layer 2 projects can ultimately settle back to the layer 1 blockchain.
Ethereum also functions as a data availability layer for layer 2s. Layer 2 projects will post their transaction data onto Ethereum, relying on Ethereum for data availability. This data can be used to get the state of the layer 2, or to dispute transactions on layer 2.
