The primary difference between Ethereum Layer 1 and Layer 2 revolves around where transactions are processed.

Layer 1 (L1) refers to the main Ethereum blockchain where transactions are settled on-chain. This includes the Ethereum network itself, where all transactions are directly recorded on the blockchain.

Layer 2 (L2): solutions are built on top of Layer 1 and provide scalability by processing transactions off-chain or via sidechains. These solutions aim to alleviate congestion on the main Ethereum network by handling transactions in a more efficient and cost-effective manner. Examples of Layer 2 solutions include Plasma, Rollups, and State Channels.