The rarity and condition are key the factors to establish the value of a coin. Rarity is easy to establish, as there is widespread agreement on the rarity of most coins. To evaluate the condition of the coin it is more challenging. In the early years of coin collecting, three general terms were used to describe a coin’s grade:
- Good: Details were visible but circulation had worn the surface
- Fine: Details were less worn from circulation and a bit of the mint lustre showed
- Uncirculated: Details were sharp and there was a lustre approaching the state of the coin at the mint, prior to general circulation
In the late 1800s and early 1900s, the collector market grew rapidly, and the need for a more precise coin grading standard became apparent. Not all the coins were the same. Some coins were simply finer than others, and some coins showed more lustre and far fewer marks than others. The terms like ‘gem uncirculated’ and ‘very fine’ began to be used. The more precise grading descriptions meant more precise pricing for the growing collector market.
In 1948, a well-known numismatist by the name of Dr William Sheldon developed the Sheldon Scale of coin grading. He gives a more precise meaning to subjective terms such as Fine, Very Fine, Extremely Fine. His scale runs from one to 70.
The biggest challenge in any coin grading system was minimising the subjective factor. Two different experts could examine the same specimen and arrive at different opinions of the grade because the standards up to that time have been mostly subjective.
By using the consensus grading approach (3 experts independently review the coin) using published, objective criteria, the early grading services were able to establish a reputation for reliability and objectivity in grading that was up to this time unknown.
Coin grading services are a relatively new phenomenon, having started in the 1980s as a response to the need for buyers and sellers to agree on common measures of a coin’s value. In an effort to bring more confidence to investors in rare coins, official grading was created. Grading services certify the authenticity and rate the quality of individual coins. Today most grading companies will seal coins in a labelled, air-tight plastic holder, ensuring the coin is protected from deterioration. This process is known as coin slabbing.