For the purposes of grading I think paper loss in all forms should result in the lowest grade, either a 1 or a 1.5 at the most.
Even though it seems crazy a blank backed card with paper loss is killed the same way any other card is, I think collecting as a whole should be moving away from number grades anyway.
I say only two grade should be given to all cards: Authentic and Altered. Then let bidders decide what makes a card valuable. It will cease to be a number and begin to be eye appeal, which is all cards should be valued on anyway. Altered cards will still be labeled as such and everyone I think benefits, especially when you consider how much card doctoring is going on now.
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