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First off, leveling. You level up to get more skill points, attribute points, and once you hit level 50, you level up to reach CP (Chamption Point) 160. That's when items stops leveling, and it becomes ideal for you to collect your endgame gear.
Chamption Points can be used on its' own separate skill tree, which will greatly increase e.g. the damage you deal. The current max is 810, but they increase it every now and then.
(There is for example a CP passive called "Thaumaturge", which can increase the damage of your AoE attacks by up to 25%. That is a LOT).
The item quality (white, green, blue, purple, gold) makes the item more powerful, but that doesn't matter if the item level is lower than your character's level. THAT is WHY one of the most important goals is to get yourself to CP 160.
Levels matter, but they matter LESS than your gear and your skill rotation. Your skill rotation, with proper weaving, makes up for about 50% of the damage you do. However, your damage is still dependent upon CP/levels and gear.
(If you don't know what weaving is, look it up on YouTube. It's essential for all dps characters. Basically though, it's about animation cancelling and how you mix light and/or (partial) heavy attacks with your abilities).
I can for example kill mudcrabs in 1 second, whereas someone without a proper setup will still need two or three hits more. (Remember to weave!!!)
People think that players and enemies scale to each other. This is false. Enemies are all the same levels in the overworld, but there is no scaling other than that. Lower level players are given a larger max resource pool (stamina, magicka and health). This bonus decreases as you level up, and is completely gone by the time you reach level 50. This is to allow lower levels to spam skills a bit more, since they deal much less damage per hit than a higher level player. Don't get me wrong, though, higher levels usually have a larger resource pool than lower levels anyways, thanks to armor sets and food/drink buffs.
People who claim they are being "punished for leveling", either only thinks that more health = stronger character, or they gave up after an hour of gameplay yet decided they were experts on the game.
Never buy equipment from merchants. They're garbage, and was never meant to be used in combat.
The reason you can only craft level 1 items, is most likely because you haven't invested any skill points into crafting. Only people who puts skill points into crafting will be able to make crafted items that are level 50 and CP 160. And yes, it's worth your time, because some pretty good sets are actually crafted sets (Hunding Rage or Law of Julianos just to name a few).
Most of the best gear is still from dungeons, trials or just overworld boss drops/chest drops.
(The same goes for food, potions and glyphs. You'll for example need high quality ingredients to be able to make good glyphs. E.g. Kuta if you want golden glyphs).
You research item traits by finding an item which has a trait that you haven't researched yet. Should be pretty easy to come by, especially if you do dungeons. Traits make up a lot of difference in your stats, so they are worth your time. Certain crafted sets require you to have an X number of traits researched in order to make an item from that set.
For example, Julianos requires you to have 6 traits researched for the item you want to make from that set.
Mundus stones are also very important, so look them up and be sure to activate one you think is good.
The major differences between high and low levels are first noticeable once you enter veteran content (dungeons & trials). A high level player should be able to do anywhere from 25k - 60k dps, whereas lower levels will barely hit 15k dps. (You can/should test this out on a dummy target, which is a housing decoration. If you're in a guild, they probably have one).
Trust me, people who say they haven't noticed any difference between low and high levels haven't played the game properly yet. Running around questing is fun and all, but you can't judge skill levels from overworld mobs.
Another really helpful response from you (you answered another of my posts a while
back)--thank you!
There is a lot to digest here (I'm going to print it and read it over 2-3 times) but somehow
the way you explain things seems more understandable than the various guides/threads I've
looked at. Thanks again.
No problem!
Hope you have fun with the game! :)
Just play the game. You will figure all that out just by playing the game.
But if you like reading 99 essays instead of actually playing the game go ahead.
Thats how I play BDO. NEVER gonna pay for it. Youtube and reading.
ESO is a good deal imo. Pay once and never pay again. Ever.
Have fun over analyzing every move in eso or life or whatever.