What is a layer 1 / layer 2 / layer 3 in the crypto world?

We’ll put it like this:

Cryptocurrencies (similar to ogres), are like onions.

They have layers.

Ok, cool Shrek reference, but what does that actually mean?

Let's use Ethereum as an example.

Ethereum is a 'layer 1', think of it like the iOS operating system on an iPhone. If anyone wants to build on Ethereum, they need to follow the rules of the operating system or 'layer 1'.

Layer 2's are like the apps on an iPhone, they take some work load off Apple's shoulders, by processing data on their own servers.

Eg: Immutable, is a layer 2 protocol for Ethereum that provides faster transactions and zero fees for NFT purchases, because it doesn't rely on the layer 1 'operating system' (Ethereum Mainnet) to do the work. It does it independently.

Layer 3's are like an app that has been built for an existing app (app-ception, if you will).

If you want an analogy, think: Farmville.

Farmville (Layer 3) was a game that was built for the Facebook app (Layer 2), which worked on the iPhone operating system (Layer 1).