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For this article, I will use gold as the basis - feel free to adapt and change it as you see fit. In your game, you may create your own upgrade materials and resources that blacksmiths use to create magic items. And the reversal is also possible: you may turn a magic item back to gold. This explains the whole idea behind the capacity of alchemists to turn common items into gold.
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The purer and rarer the metal or gem, the more magical energy it has contained. They are the best conduit for magic and also a reserve of magical energy. In my games - in order to make things simple - I say that precious metals and gems are more than rare commodities used in commercial exchange. It is important that in your game you define what kind of resource is used to infuse items with magical power. In Salt&Sanctuary, you use salt - which is similar to souls, where they are the last figments that remain from a defeated foe.
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In Dark Souls, you use the souls you collect from defeated enemies to improve your equipment, infusing them with the soul's power. Games such as Dark Souls and Salt & Sanctuary have an in-world explanation for their magical forges. On this article, I will propose a special DM option to allow magical forge and item improvement in your campaigns in a way similar to these games. Sometimes using socketed gems, or the character's skill with a forge, or finding magic runes or using arcane enchantments, there are many ways a character can improve its items.
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Skyrim, Diablo, Dark Souls, Path of Exile, Salt & Sanctuary, and many, many other games have some interesting mechanics to deal with the improvement of items.
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