The base infrastructure where transactions are processed and finalized. Layer 1s must contain the foundational blockchain infrastructure, use a consensus mechanism, complete and settle transactions, and have a native token. Bitcoin and Ethereum are examples of L1s.

A scaling solution built on top of a Layer 1 blockchain. L2 networks help increase transaction speed and reduce costs while still relying on the security of the underlying blockchain. L2s are particularly important for Bitcoin since it does not allow for smart contracts on its L1.

A record of all transactions on a blockchain. The ledger is shared across the network and publicly verifiable, allowing anyone to view transaction history.

A measure of how easily an asset can be bought or sold without significantly affecting its price. High liquidity means there are many buyers and sellers, making trading smoother.