This is one of the most important processes done on a coin to determine its condition, and thereby its value.
As every year passes by, the grading of the coins is becoming more and more precise, with clear distinctions, especially in the case of the US coins. In the olden times, the grading was limited to just two types - the new and the used.
But later on, the letter system of grading came into being. This consisted of the Basal State (never abbreviated), Fair (Fr), Almost Good (AG), Good (G), Very Good (VG), Fine (F), Very Fine (VF), Extra Fine (EF or XF), Almost Uncirculated (AU), Uncirculated (Unc), and the Beautiful Uncirculated (BU) grades. The Gem Uncirculated was also a grade that was similar to the BU grade.
The Scheldon scale was then introduced in 1950, by William H Scheldon, in his book “Penny Whimsy”. This was a scale which counted from 1 to 70. He actually intended to show the value of a Large Cent coin of 1794, as it was $1 at that time, in the basal condition, and $60 for the uncirculated coins.
This type of grading was first used by the copper collectors in the society, until the middle years of 1980s. The copper collection is a special part of coin collection and such collectors have their own standards and grades compared to the other type of coin collectors.
In the midst of 1980, the next grading system, the PCGS, was introduced. This grading system had the advantage that they would check and grade the coins, and then they would separate them and encapsulate them into hard plastic cases. The system used a combination of the older ones and the grading scale here looked like BS-1, FR-2, AG-3, G-4, G-6, VG-8, VG-10, F-12, F-15, VF-20, VF-25, VF-30, XF-40, XF-45, AU-50, AU-53, AU-55, AU-58, MS-60, MS-61, MS-62, MS-63, MS-64, MS-65, MS-66, MS-67, MS-68, MS-69, MS-70. They system also offered some guarantee on the coins graded by them.
Thus the grading system began to become more and more precise. Along with the PCGS grading system, there was one more system that was used to grade the proof coins. The scale used here ranged from PR-01 to PR-70. The whole idea of introducing these grading systems was to make the trading of coins easier in the markets. But here, the disadvantage was that the grading system used here was technical and not market type. Hence it was difficult to relate the grade directly to a value.
Apart from all these, there was the biggest advantage that the introduction of the PCGS grading system caused the reduction in counterfeit coins that were being circulated in the market. But even then, some of the counterfeits had been made in such a way that they would easily through the grading system, without getting rejected.