Coin Grading: An Overview and History
As long as the hobby has existed, the condition of a coin has been vitally important. A coin’s grade has always had a profound impact on its value, desirability and marketability. What has changed, however, is how a coin’s condition is described and quantified. Whereas coins were once graded using vague terminology, today’s collectors and dealers use a highly sophisticated grading scale. Grading may be an art and not a science, but the level of precision and consistency is greater than ever.
Until the mid-20th century, coins were described with loose terms that had varying meanings. Commonly used phrases like “Extremely Fine” or “Like New” could mean anything from moderately worn to virtually perfect. Each dealer and auction house had its own set of definitions, leading to tremendous confusion—and making sight-unseen trading highly risky.
Recognizing the need for reform, numismatic author and expert William Sheldon developed a new grading scale in 1949. Sheldon’s system formalized verbal terms and calibrated them to a 1-70 numerical scale. For instance, a coin graded “Very Fine” would meet specific condition parameters and would translate to a numerical grade of 20-35. A coin graded 20 would just barely meet the requirements for “Very Fine” while a 35 would be a high-end specimen approaching the qualifications of “Extremely Fine”. This helped distinguish and recognize higher-end coins.
The Sheldon system became extremely popular among collectors and dealers; by the 1960s it was the de facto standard in the hobby. Even with the new grading scale, there was still a fair amount of grading controversy. Collectors and dealers did not always see eye-to-eye on grading standards—and furthermore many counterfeit and altered coins were circulating in the marketplace. Coin grading standards had improved, but there was a need for greater trust and consistency.
A major breakthrough came in 1986 and 1987 with the establishment of two firms: Professional Coin Grading Service (PCGS) and Numismatic Guaranty Corporation (NGC). These third-party companies employ panels of expert numismatists to grade and authenticate coins submitted for evaluation. Once graded, each coin is encapsulated in a sonically-sealed holder with a certificate displaying its grade.
PCGS and NGC quickly developed a reputation for consistency, accuracy and trustworthiness. In fact, coins graded by PCGS and NGC trade sight-unseen with ease—including pieces worth hundreds of thousands. In today’s marketplace, any vintage coin with significant numismatic value is expected to be certified by PCGS or NGC. Except for coins of low value (or coins worth close to melt), third-party grading is deemed a must.
In summary, coin grading is now more precise and uniform than ever. The existence of third-party grading services has brought tremendous benefit to the hobby. It has helped protect the consumer, level the playing field for everyone in the market, and increase liquidity. Thanks to the trust placed in PCGS and NGC, coins of significant value can trade freely on a sight-unseen basis. In sum coin grading is no longer a mystery to collectors and investors; PCGS and NGC allow today’s buyers to act with confidence.