There are 10 levels of progression for the blacksmith, each you time level your blacksmith you receive admirable benefits. You don’t just level your blacksmith, each time you burst a load of money to try level him up his experience goes up by 20% every time.
Level your blacksmith by giving him gold from your adventures, the amount you give stays the same until he has levelled, and then it increases. The more experience he has the better loot you can craft. For every time you level your blacksmith, he will advance in appearance.