The Silmarils (Quenya pl. Silmarilli, radiance of pure light) are three brilliant jewels which contained the unmarred light of the Two Trees in J. R. R. Tolkien's legendarium. The Silmarils were made out of the crystalline substance silima by Fëanor, a Noldorin Elf, in Valinor during the Years of the Trees. The Silmarils play a central role in Tolkien's book The Silmarillion, which tells of the creation of Eä (the Universe) and the beginning of Elves, Men, and Dwarves.
The Silmarils are not mere jewels which shine with a great light. The three Silmarils are in some sense both alive and sacred. How Fëanor, admittedly the greatest of the Noldor, was able to create these objects is not fully explained. Even the Valar, including Aulë, the master in handskills indeed, could not copy them. In fact, even Fëanor may not have been able copy them as part of his essence went into their making. Their worth, in Tolkien's universe, was close to infinite, even to the Valar, as they were unique and irreplaceable. The Silmarils themselves are said to produce their own light, which comes from the Two Trees, but also to reflect the light of any other lights that come near them.
Fëanor, son of Finwë, one of the first Elves (Eldar) in Eä, created the Silmarils from the light of the Two Trees. The Silmarils were hallowed by Varda, so that they would burn the hands of any evil creature or mortal who touched them (with the exception of Beren).
Together with Ungoliant, the rebellious Vala Melkor destroyed the Two Trees. The Silmarils then contained all the remaining unmarred light of them. Therefore the Valar entreated Fëanor to give them up so they could restore the Trees, but he refused. Then news came that Melkor had killed Fëanor's father Finwë, the High King of the Noldor, and stolen the Silmarils. After this deed, Melkor fled from Valinor to his fortress Angband in the north of Middle-earth. Thereafter he wore the Silmarils in his iron crown.
Fëanor was furious at Melkor, whom he named Morgoth, "Dark Enemy of the World", and at the Valar's perceived desire to take the gems for their own purposes. Together with his sons he swore the Oath of Fëanor, which bound them to fight anyone who withheld the Silmarils from them. This terrible oath resulted in much future trouble including mass-murder and the war of Elf against Elf.
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