Layer 2 solutions are technologies built on top of a blockchain, like Ethereum, to improve its scalability and transaction speed. They work by processing transactions off the main blockchain, reducing congestion and lowering fees while still benefiting from the security of the underlying network. These solutions include methods like state channels and rollups, which bundle multiple transactions together before submitting them to the main chain. This approach allows for faster and cheaper transactions, making blockchain technology more efficient and user-friendly for applications such as decentralized finance (DeFi) and non-fungible tokens (NFTs).