Caspar, Melchior and Balthasar were the three kings(also known as the Three Wise Men) who saw the star over Bethlem when Christ was born. They followed it to find the Christ child on January 6th. They brought the Christ child gold, frankincense and myrrh.
The observance had its origins in the Eastern Christian Churches and was a general celebration of the manifestation of the Incarnation of Jesus Christ.The earliest reference to Epiphany as a Christian feast was in A.D. 361, by Ammianus Marcellinus.
On the evening before Three Kings, traditionally there were prayers, blessed dried herbs would be burnt and their aromatic smell would fill the house. Doorways would be sprinkled with holy water and the master of the house would write with chalk C + M + B and the year above the house and barn door and say: "Caspar, Melchior, Balthasar, behütet uns auch für dieses Jahr, vor Feuer und vor Wassergefahr." ("CMB, protect us again this year from the dangers of fire and water.") C + M + B has traditionally been translated with Caspar, Melchior and Balthasar, however, according to the Church it stands for "Christus Mansionem Benedictat" (Christ bless this home).
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There is a myth perpetrated by fruit-cake haters that says there were originally four kings, but the fourth one was turned away when it was seen that his gift was a fruit cake. Cake has become the food symbol of the day in spite of this refusal myth, and a common theme around the world where the religious and cultural heritage is Christian is the hiding of a coin, or bean, or small toy in a special cake, and the elevation of the person finding this in their slice to be king or queen for the day.