Methods of Obtainment:
Just like in many other MMO’s, upgrades come in the form of items that need to be obtained either by being bought or looted from the dead carcass of creatures. Theoretically where can those items be on the mob? Obviously the large tree hadn’t been carrying the great sword at its side the whole time. So in my opinion you are technically pulling these upgrades out of the guts of dead mobs.
Another method of getting these upgrades is through gathering resources. Often when mining the most basic of upgrade materials can be found. The same applies to gathering wood. For obvious purposes I don’t think the game designers would really want gems to be popping up with your carrots you might eat later…
The final method that is also used to obtain materials is through crafting them. Recipes for these items can be bought at karma merchants, and the more rarer ones found off of bosses and mobs. The upgrades will only be available to the player, if they have the crafting level necessary to make them. Most of the items that are used for upgrades that are craft-able might cost a pretty sum because of the items put into the making so expect a large scale of differences in cost.