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The library is the place from which you draw your scrolls. It consists of the scrolls in your deck in a random order. Whenever you draw a scroll, the first scroll of your library is taken into your hand, unless the draw effect came from a scroll with a different draw rule (see Summons or Eye of Eagle).

The graveyard is the place where your played or sacrificed scrolls go to. Whenever you cast a spell scroll or sacrifice a scroll for resources or more scrolls, it is put on top of the graveyard. Scrolls of units on the board and the enchantment scrolls affecting them are placed on the graveyard as soon as the unit dies on the battlefield.

When your library runs out of scrolls, the graveyard is shuffled and becomes your new library. Since you can never run out of scrolls, it is advisable to keep your deck size as close to 50 scrolls as possible to maximize the chance of drawing the scrolls you need.

Trivia

Many scrolls have no distinction between the library and the graveyard. Scrolls like Eye of Eagle which search the library for specific scrolls to draw also searches the graveyard if the scroll was not found in the library. If it is also not found in the graveyard, no scroll will be drawn. In contrast, scrolls that use the sift mechanic only either draw from the library or from the graveyard, i.e. if you want to sift two scrolls from the library, but only have one left, you sift one scroll.