Part Nine - The Professional Coin Grading Service (1986)

In the closing months of 1985, as the specter of gradeflation threatened to undermine the trust of collectors and investors in the numismatic market, a group of dealers met in California to discuss restoring integrity and confidence to the hobby. Led by David Hall, the group included John Dannreuther, Gordon Wrubel, Steve Cyrkin, Bruce Amspacher and Sil Digenova. Their goal was a simple one – form an independent grading service, whose opinions would not only stand the test of time, but would garner universal acceptance in the market.

In February 1986, the Professional Coin Grading Service (PCGS) opened its doors, and was immediately flooded with tens of thousands of coins. PCGS employed three primary innovations that ensured its long-term success. First, it encapsulated all its coins in a tamperproof, hard plastic holder. Aside from the obvious advantages of ease of handling and protection of the coin from damage, the holder guaranteed that the coin inside was indeed the one graded and that it was in the same condition as when it was examined.

Second, PCGS set up a network of authorized dealers. Among the requirements was the unconditional acceptance of PCGS-graded coins at the grade shown on the holder if a "buy" bid was placed. This permitted a sight-unseen market to function, and gave real meaning to a dealer's bid price.

Third, PCGS established a live, trading market under the name "American Numismatic Exchange," popularly known as "Annie." Dealers were able to buy and sell coins on the exchange, and because acceptance of PCGS coins was assured, the bid and ask prices were highly reliable market indicators that enabled outside financial institutions to understand and participate in the rare coin market.

From a grading standpoint, PCGS used the already familiar Sheldon Scale, but made use of all numbers between 60 and 70 for uncirculated and proof issues. Additional intermediate grades (beyond those officially recognized by the ANA) were employed, notably for the VF and AU grade ranges. PCGS also codified the use of modifiers for many issues – Brown, Red and Brown and Red for copper coins; numerous strike attributes such as Full Head, Full Bands, Full Steps, and Full Bell Lines; reflectivity for Morgan Dollars, (Prooflike and Deep Mirror Prooflike) and cameo contrast for Proof coins.

PCGS grading was extremely market-oriented, and a strict correlation between the PCGS grade and the coin's market value was a core tenet of the grading process. In its early days, to cope with volume, PCGS employed numerous prominent dealers as "guest" graders who would come to the PCGS offices for a week or so and assist in the grading. Later, PCGS would rely increasingly on full-time professionals to do the grading. In 1989-90, PCGS experimented with computer imaging to assist in the grading process, and hopefully even to grade the coins. Unfortunately, technology was not up to the task, and this effort was abandoned after a short trial period. Perhaps someday this topic will be revisited.

The unqualified success of PCGS spawned a host of imitators, and within a few years, several other similar services emerged that attempted to copy PCGS's formula. Most successful was the Numismatic Guaranty Corporation (NGC) of New Jersey (later Florida). Previously existing services (ANACS and NCI) placed their coins in tamper-proof holders as well, but a true sight-unseen market never developed for these coins. Most of the other imitators (Compugrade, ICG, SEGS, Hallmark, PCI) were either short-lived or enjoyed very limited success in the market. In 1990, the American Numismatic Association sold the ANACS grading and authentication service to Amos Press (publisher of Coin World).