When you first unlock Blacksmith in Redstone, you'll notice that it has only one upgrade slot available for your gear. However, there are three of them. The other two are locked until you complete a specific task.

To unlock the second upgrade slot, you must defeat the Arch-illager on default difficulty. Once you do, you'll be able to upgrade two items at a time.

To unlock the third slot, you must also defeat the Arch-illager on adventure difficulty. Unlock the adventure after completing the game in default mode.